<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
Amendment No. 3
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
EUROTELECOM COMMUNICATIONS INC.
(Name of Small Business Issuer in its Charter)
DELAWARE 87-0409699
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
MEXBOROUGH BUSINESS CENTER
COLLEGE ROAD
MEXBOROUGH
YORKSHIRE
UNITED KINGDOM
(Address of Principal Executive Offices)
Tel: 011 44 1709 590899
Fax: 011 44 1709 590939
Issuer's Telephone number
SECURITIES TO BE REGISTERED UNDER SECTION 12(b) OF THE ACT: NOT APPLICABLE
SECURITIES TO BE REGISTERED UNDER SECTION 12(g) OF THE ACT: COMMON STOCK, $.01
PAR VALUE
<PAGE>
PART I
EuroTelecom Communications Inc. (EuroTelecom or the Company) has included
forward looking statements in this document. Forward-looking statements include
statements concerning plans, objectives, goals, strategies, expectations, future
events or performance and underlying assumptions and other statements, which are
other than statements of historical facts. Certain statements contained herein
are forward-looking statements and, accordingly, involve risks and
uncertainties, which could cause actual results, or outcomes, to differ
materially from those expressed in the forward-looking statements. EuroTelecom's
expectations, beliefs and projections are expressed in good faith and are
believed by the Company to have a reasonable basis, including without
limitations, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's expectations, beliefs or
projections will result or be achieved or accomplished. In addition to other
factors and matters discussed elsewhere herein, the following are important
factors that, in the view of the Company, could cause actual results to differ
materially from those discussed in the forward-looking statements: the ability
of the Company to obtain acceptable forms and amounts of financing to fund
planned acquisitions and operations, technology development, marketing and other
expansion efforts; the global market for technology; and the ability of the
Company to complete proposed acquisitions. The Company has no obligation to
update or revise these forward-looking statements to reflect the occurrence of
future events or circumstances.
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
EUROTELECOM IS AN E-LINKING COMPANY.
EuroTelecom supplies and installs complete telecommunication based
infrastructures to property owners, property developers or operators of
buildings. Once installed, a facilities management function is offered to
provide additional potential revenue opportunities created by the supply of
voice and data services, audio and audio-visual material, to the end user.
The technology platform utilized by the Company, was developed and supplied to
the Company on an exclusive contract basis. Multi-protocol SDH allows many
different systems to be handled simultaneously; this enables the initial capital
cost of the infrastructure to be spread across many services with the effect of
achieving a lower package cost than that available by utilizing traditional
means of wiring. SDH is a Synchronous Digital Hierarchy base platform for public
telephone operators.
Utilizing the current fiber optic cabling techniques as the backbone to the
infrastructure system means that increased system reliability is secured. The
fiber system is a self-healing contra rotating loop (if one loop is cut, then
the other takes over. If both loops are cut, then equipment at both ends of the
cut loop them together) and allows services to be cut and maintained easily; the
use of fewer active component boxes also reduces downtime, the volume of spares
required and the mean time to repair. EuroTelecom believe this method of
approach also increases the efficiency of the system within the building.
The EuroTelecom management believes that the business model for the supply of
services of the type provided by the Company is changing and the market requires
`packaged systems'. The ability to offer infrastructure costs with advertising
and sponsorship deals within a single service contract is a better model as the
Company works with the customer as a technology partner, helping them to develop
their business and gain efficiencies by the effective use of technology. Many of
the additional systems required involve the use of control systems such as close
circuit television (CCTV), audio-visual equipment, voice and data networks and
systems management software; a number of the Company's subsidiaries have been
developed to offer these services as part of the total package.
As the Company manage many systems that are often described as `e-commerce' or
`e-business' applications and links them all within one technology platform
under one service contract, the phrase `e-linking' has been utilized.
<PAGE>
EuroTelecom does not provide long distance telecommunications but does have
strong strategic relationships with the major satellite and landline suppliers
and is able to negotiate favourable terms for customers.
EuroTelecom offers its customers consulting services in the creative use of
e-linking in technology-enabled business re-engineering. The Company is able to
design and manage the procurement, installation, configuration and application
of a network suited to the particular needs of customers. After installation,
the Company provides technical support or managed services.
The Company is a holding company that operates through its subsidiaries. The
Company currently has two main subsidiary companies, EuroTelecom Corporation
Limited, and RTC Inc. EuroTelecom Corporation limited has two operating
divisions, defense and commercial, and four subsidiary companies: Easy/IP
Limited, Objectiveplan Limited, Chunlan Limited, and Universal Communication
Solutions Limited.
Internet users can find additional information from The Company's Web site at
http://www.eurotelecom.co.uk. The Web site is not part of this Form 10-SB.
THE MARKET
The management of EuroTelecom views the leisure, entertainment and retail
industries as an exciting growth market. The same principles apply to other
sectors: - defense, health care, government, financial services, utilities, oil
and gas production. There is significant potential in the defense, education,
training and health care industries. The market is growing rapidly.
Telecommunications worldwide is a trillion-dollar industry and has been growing
year by year at over 20%. The Company estimates that the local site-networking
sector in Europe alone will be a several billion dollar market by the year 2002.
(Source: Frost and Sullivan Report 1996)
EuroTelecom has strategically designed the company to be, in the opinion of
management, one of a few companies that offers a totally integrated, turn-key
approach to advanced information technology application.
<PAGE>
BUSINESS DEVELOPMENT
The Company is a successor by merger to ATNN, Inc., which was incorporated in
the State of Utah in 1984. ATNN, Inc. operated various businesses until 1994,
when it ceased operations and became a development stage company. The merger
took place in August 1997.
The Company is building a group of companies engaged in e-linking and
information technology applications. The Company's UK activities are organized
through a wholly owned intermediate holding company, EuroTelecom Corporation
Limited.
The core business of EuroTelecom, has from the start been the delivery of
e-linking systems to its clients. The Company is now active in the following
markets:
o Defense, Security, Central & Local Government
o Retail, Sport, Entertainment and Leisure
o Banking and Financial Institutions
o Oil and Gas
In November 1998 the Commercial Systems Division of EuroTelecom Corporation was
established to provide Close Circuit Television (CCTV) Central Monitoring from
premises in South Yorkshire, United Kingdom (UK). Business has grown rapidly and
the Division is expanding its services to provide total CCTV systems, service
and maintenance, asset tracking systems and on-site security guard services
throughout the UK.
Since its inception, the Company through is business development team in
EuroTelecom Corporation Limited, has continued to develop its interests in the
Retail, Sports, Entertainment & Leisure markets. The sales cycle of such large
projects is long however, and the first projects are expected to come to
fruition during the fourth first quarter of 2000.
As part of the Company strategy for growth a number of businesses have been
acquired:
o RTC Inc.
o Easy/IP Limited
o Universal Communication Solutions Limited
o Objectiveplan Limited
o Chunlan Limited
The Company has not incurred research and development costs in the past two
fiscal years.
SUBSIDIARY COMPANIES
EUROTELECOM CORPORATION LIMITED
EuroTelecom Corporation Limited was formed on April 12, 1996, and consists of
two operating divisions, Defense and Commercial. EuroTelecom Corporation Limited
is the Management Company for all EuroTelecom UK subsidiary companies.
The security division operating out of the Mexborough UK office, which covers
CCTV installations, monitoring and maintenance achieved revenues during the six
month period ended June 30, 1999 of $218,864, with a gross margin of $163,794.
The defence division operating out of the Blandford UK office which covers the
supply of equipment to the Ministry of Defence, achieved revenues during the six
month period ended June 30, 1999 of $384,608, with a gross margin of $169,619.
The above margins are consistent with the industry sector and the EuroTelecom
management are confident that these can be maintained.
An additional amount of $171,410 was invoiced in the period for the
decentralisation of the control facility at Merryhill Shopping Centre.
<PAGE>
EASY/IP LIMITED
Easy/IP was founded on June 12, 1995, and acquired by the Company in April 1999.
Easy/IP Limited is a software distribution company in the field of TCP/IP
applications providing solutions for today's exacting computer networking
requirements. The Company is a specialist supplier of third party software and
hardware in the computer connectivity market, with a customer base of over 350
prime United Kingdom Retailers. It currently holds the UK sole rights for
Microplex and is one of a select number of distributors for Attachmate,
Netmanage and Netopia software. All this software assists the Company in
providing computer connectivity.
Easy/IP is looking to broaden its connectivity range to incorporate more
terminal emulation, Internet and Intranet products, as well as a range of
computer hardware. Another new area will be Intranet security, Easy/IP is set to
increase its tele-sales force to address these new markets and to create a
corporate sales division. This will necessitate expanding both support and
administration operations.
Many companies, some with much greater resources than Easy/IP, compete or are
capable of competing with Easy/IP. The market operated in does not have any
major barriers to entry. EuroTelecom believes however, that individual manager's
experience within each sector provides a platform for growth and profitability.
Audited revenues for Easy IP Limited for the twelve months immediately prior to
acquisition were $2,148,410 and net profit before taxation of $132,288. Audited
revenues for the three months post acquisition were $531,925 and net losses of
$7,508 (An average $ to (pound) conversion of $1.60 to (pound)1 has been used
used in this memorandum) The audited financial statements of Easy IP Limited for
the year ended 31 March 1999 are included at exhibit 3(xv) and for the three
months ended 30 June 1999 at exhibit 3(xvi)
UNIVERSAL COMMUNICATION SOLUTIONS LIMITED (UCS)
UCS is a company specifically formed by EuroTelecom to take advantage of the
Offshore Oil Communication Industry. Formed in February 1999 UCS began
operations in July 1999 when it recruited a team of 5 people with over 15 years
experience in the Industry. The team is considered by EuroTelecom management to
be experienced as a telecommunications systems provider to the Offshore
Industry. The management and control of telecommunications projects have been a
regular feature of this team's activities over the years.
Many companies, some with much greater resources than UCS, compete or are
capable of competing with UCS. The market operated in does not have any major
barriers to entry. EuroTelecom believes however, that individual manager's
experience within each sector provides a platform for growth and profitability.
UCS has been set up to take advantage of the team's experience in the offshore
Oil and Gas industry. The UCS team has, prior to joining EuroTelecom, undertaken
installed projects which cover a range of Telecommunication systems used by this
industry, including:
o Tropospheric Scatter Links
o Line of Sight Microwave Radio
o CCTV, and Safety Surveillance
o Single Channel VHF & UHF Systems
o Aeronautical & Marine Communications
Stations
o HF Voice
o Telex
o Multiplexing Equipment and associate peripheral & terminal equipment.
<PAGE>
Specific projects included:
(i) the design, supply and assembly of telecoms equipment for the Hewett
Accomodation Platform for McDermott International
(ii) design, supply and installation of HF/VHF Watch Station for Tonga
Telecoms
UCS is the first company in the EuroTelecom Group to achieve internationally
recognised Quality Assurance accreditation of ISO 9001.(International Standards
Organisation) The UCS Quality Manager responsible for this success is now
working with each EuroTelecom division to help them achieve ISO accreditation.
UCS has recently been awarded contracts in the Middle East to a value of
$200,000 and contract extensions for a further $300,000 are in finalization.
This is the first contract to be awarded to UCS. No revenues were contributed by
this subsidiary to the group for the period to 30 June 1999.
OBJECTIVEPLAN LIMITED
Objectiveplan is a company specifically formed by EuroTelecom on May 11, 1999 to
provide a single software package which enables control data to pass between
non-related systems so as to act in a homogeneous manner. It has current
applications in the retail, sports leisure and industrial sectors for security,
safety, fire control, and also traffic management applications. Objectiveplan
was formed by recruiting a team of specialists with in these specific skills and
who had product ownership. The team's products provide the essential man machine
interface (MMI) to the various subsystems within the e-linking solutions. MMI is
the equipment that makes technology easy to use eg. mouse, keyboard, computer
screen and telephone.
Objectiveplan have recently completed and released a Beta version of a human
facial recognition system. Used in conjunction with standard CCTV surveillance
systems the facial recognition system enables identification and notification to
monitoring station locations.
This product is being marketed and demonstrated to from shopping mall operators,
police and security service companies.
Many companies, some with much greater resources than Objectiveplan, compete or
are capable of competing with Objectiveplan. The market operated in does not
have any major barriers to entry. EuroTelecom believes however, that individual
manager's experience within each sector provides a platform for growth and
profitability.
No revenues had been contributed by this subsidiary to the Group for the period
to 30 June 1999.
CHUNLAN LIMITED
Chunlan was formed on Feb 3, 1998 and began operations in August 1999. The
company imports, distributes and installs air conditioning units suitable for
industrial, commercial and domestic applications. The company is located in
leased premises at Huddersfield, West Yorkshire.
Many companies, some with much greater resources than Chunlan, compete or are
capable of competing with Chunlan. The market operated in does not have any
major barriers to entry. EuroTelecom believes however, that individual manager's
experience within each sector provides a platform for growth and profitability.
No revenues had been contributed by this subsidiary to the Group for the period
to 30 June 1999.
RTC INC.
RTC Inc. was founded in 1990 and is incorporated in the state of Maryland and
acquired by the Company in August 1999. It operates as a full service technical
marketing, sales and consulting firm specialising in electronic communication
hardware and software.
<PAGE>
RTC Inc. provides marketing to high technology companies wishing to expand their
market share to develop new business with the Department of Defense (DoD), the
Intelligence Agencies and commercial companies in the Maryland, Virginia and
Washington DC area. RTC Inc. has two divisions; Special Projects and Fiber Optic
Telecommunications. RTC has also undertaken business directly with the DOD and
the Intelligence Agencies.
SPECIAL PROJECTS
This division deals primarily with the DoD and the Intelligence community. It
provides the customer with capabilities in signal collection, identification,
analysis and distribution for command control of assets in remote and local
areas. This niche market provides a stable business base.
FIBER OPTIC, TELECOMMUNICATIONS AND SIGNAL DISTRIBUTION
This division deals with both the government organizations and the commercial
business sectors involved in signal distribution. It provides high-speed fiber
optic communication systems, test equipment and system integration capabilities
for this expanding market. RTC Inc. is positioning itself to take advantage of
the growth potential.
RTC Inc. maintains offices in Norfolk, VA. Springfield, VA. Laurel MD and
Severna Park, MD to serve this customer base.
RTC Inc. is developing into a system integrator as its customer base demands a
wider range of products and services.
Many companies, some with much greater resources than RTC, compete or are
capable of competing with RTC. The market operated in does not have any major
barriers to entry. EuroTelecom believes however, that individual manager's
experience within each sector provides a platform for growth and profitability.
Revenues for 1998 amounted to $231,088 with net profit of $6,968 prior to
acquisition.
SALES FORCE
EuroTelecom employs over 20 sales professionals who are trained to provide
customers with sales and customer service relating to all EuroTelecom services.
The sales force includes specialized professionals who focus on sales of the
varying technologies offered through the EuroTelecom Group. Ongoing sales
training helps the sales force to better understand their customer's businesses
in order to develop innovative, application-specific solutions to each
customer's needs.
SIGNIFICANT CUSTOMERS
EuroTelecom customers include UK and US Defense departments, banks, financial
institutions, the oil and gas industry, retail mall, and resort developers. Such
customers include the UK Ministry of Defense, Army and Air Force and GCHQ; the
National Security Agency in the US and the Nigerian Armed Forces. Within the UK
Retail Sports and Leisure market the Company has worked with Chelsfield plc, the
developer and operator of the West Midlands based Merry Hill shopping mall. The
Company is currently negotiating contracts with a large developer of a planned
mall in the north of England
COMPETITION
EuroTelecom has carefully surveyed the market competition and has concluded that
there is no current evidence to indicate significant competition to its
integrated model of complete, unified services. Many companies, some with
resources substantially greater than EuroTelecom, are capable of competing with
it. Most of the companies capable of competing, (BT, Energis, Cable & Wireless
and some of the system integrators) are too large and committed to specific
technologies which EuroTelecom Management consider are barriers preventing them
from entering into direct competition. The Company will maintain its competitive
advantage by maintaining a close watch on the potential competition and through
the carefully planned introductions of value added services. There are, however,
no substantial barriers to entry.
<PAGE>
TRENDS
Global deregulation of telecommunications, the resulting increased competition
and the rapid development and application of new technologies have stimulated a
growing demand for advanced telecommunications services. Corporate customers in
commerce and industry: financial services, entertainment and leisure industries,
manufacturing, public utilities and other sectors have become aware of the power
of advanced information and communications technology to bring competitive
advantage by:
o Extending their markets.
o Reducing costs.
o Speeding products to market.
o Improving standards of customer service.
o Developing new and innovative ways to approach the market.
In particular there will be a huge growth in the requirement for integrated
networking infrastructures, particularly by the entertainment and leisure
industries. The single, managed, infrastructure that can be provided by The
Company offers major business opportunities as well as substantial cost
reductions to the site developer and to the businesses on a site. The Company
can design and install networks that will handle multi-media large screen
displays, site administration, security and access controls, CCTV monitoring,
"intelligent building" controls, fire and intruder alarms, advance computer
networking and internet access.
In addition to the impact that high-speed integrated networks is having on
private industry, Governments are also seeing networked information systems as a
way to help reduce costs, improve public service and devolve and decentralise
the functions of government. The military is continually expanding the use of
advanced telecommunications in operational, command and control and
administrative roles. There is an ongoing revolution in the approach to
education and training through the use of Advanced Learning Technologies through
distant learning.
The Company serves these expanding markets by providing advanced, integrated
e-linking corporate networks, either by the development of a completely new
networking infrastructure or by the integration of advance e-linking services
with existing networks. These e-linking networks can be partitioned into
separate, discrete private, secure communities as required by military security
standards.
The Company has access to proven cost effective technologies and has experience
in practical, business related implementation in a wide variety of applications.
As well as normal information systems and Internet access, EuroTelecom e-linking
systems can support e-commerce, cash-point dispensers, retail card systems,
"smart cards" for cash-less transactions, information kiosks, video-walls and
distance training. Where a host of separately designed and installed networks
are normally used, EuroTelecom can provide services over a single integrated
e-linking system.
Furthermore, the Company offers an approach to networking that is adaptive and
that will facilitate further change and innovation. The e-linking network can be
expanded and new applications can be added but there will rarely be a need for
wholesale replacement of the network.
ANTICIPATED ACQUISITIONS
EuroTelecom has maintained a belief that rapid growth can be achieved through
merger and acquisition. The Company has acquired a number of businesses to date
in line with this strategy. Other acquisitions have been identified which will
strengthen the Company, both in its ability to deliver products and services and
to widen the available services offered.
The Company will continue to grow by acquiring successful and innovative
companies that own a proven, advanced technology or that can offer services as a
systems integrator or relevant telecommunications services.
<PAGE>
EMPLOYEES
The Company currently has a total of 126 full time staff. Additionally, on an as
required basis, the Company employs a varying number of independent contractors.
None of the Company's employees is represented by a labor union with respect to
his or her employment by the Company. EuroTelecom has experienced no organized
work stoppages and maintains an excellent relationship with its employees.
EuroTelecom believes that its future success will also depend to a significant
extent upon its ability to attract, train and retain highly skilled technical,
management, sales, marketing and consulting personnel. Competition for such
personnel in the industry is intense. There can be no assurance that the Company
will be successful in attracting or retaining such personnel, and the failure to
attract or retain such personnel could have a material adverse effect on the
Company business or results of operations.
MANAGEMENT TEAM
The Company's senior management team has the depth of experience, extensive
market knowledge and management ability to successfully implement the
technologies and rapid growth that is planned.
DR. JOHN SPACKMAN, Chairman, served for 32 years in the British Army during
which time he held many technical and computing appointments including chief of
the division of SHAPE. He retired as a Brigadier General in charge of the Army's
logistics stores systems. As an under-secretary in the Department of Health and
Social Security, he was responsible for the modernization and integration of the
UK's social security, unemployment, National Insurance and pensions systems
which is one of the world's largest IT systems. Other positions: Director of
Information Systems for British Telecom, first Director of the European
Telecommunications Informatics Services Organisation, Director of Information
Systems to Government of Make and Chairman of a number of advanced networking
companies. Additionally, John also operates as an independent consultant in
telecommunications and strategic information systems. John has a PhD in Physics
and an MSc in Management Science. He is a Chartered Engineer, a Governor of the
International Council for Computers and Communication, a Liveryman of the
Worshipful Company of Information Technologists and a Fellow of the British
Computer Society.
PHIL DERRY President and Chief Executive Officer. Phil has over 32 years of
experience within the telecommunications industry. He is well known throughout
the industry. Background experience includes successfully building separate
businesses, (Marlborough Communications Limited and Electronic Marketing
Solutions Limited). The latter was successfully sold to Intelect Communications
Inc. a NASDAQ quoted public company. Previous early employment included TCI Inc,
and Plessey Communications & Avionics. Before joining the communications
industry, Phil had a successful career in HM Forces, Royal Corps of Signals. He
has a very strong background in the operational knowledge of communication
systems, which has been the basis of his successful sales career.
DAVE WALTON Chief Operating Officer. Dave has 31 years of experience within the
telecommunications industry that began with the UK General Post Office as a
telecommunications engineer. Dave worked for British Gas, EmirTel in the United
Arab Emirates and two US companies, Teledyne Geotech and Amarada Hess. As a
senior project manager for Costain Telecom Systems Limited, Dave delivered the
Morecambe Bay offshore Phase 1 Stage 2-field control and communications project
ahead of time and in budget. His career continued with BT where he was promoted
through various jobs to become the Bid Director responsible for all BT vertical
market sectors for large multi million dollar contracts. His last position with
BT was as a Director of GSL Limited, a consortium Group of 4 companies. David
was responsible for the total IT and Telecoms infrastructure bid which included
an ongoing 25-year, facilities management of the infrastructure.
ANDY KRAWCHUK Vice President of Marketing. In 1985, Triple Five Corporation
hired Andy to consult with the entertainment and leisure applications for the
West Edmonton shopping mall in Canada. This is one of the world's largest
shopping and entertainment malls. Andy moved to UK in 1988 to continue building
and developing the mall programs and worked on the Meadowhall Center in
Sheffield. He continued with similar work in Germany with CENTRO in Oberhaussen.
During the past three years, Andy has taken a position as Vice President with
the Company and is presently introducing the Company's multi-media technology in
the design, installation and management of major retail, leisure, sports and
business centers throughout Europe.
<PAGE>
RAY MAY Vice President US Operation. Ray is CEO of RTC Inc. He has been the
President of RTC Inc., since 1990. Before this he was Director of Marketing and
VP for Sales with Watkins Johnson, Scientific Communications and Aiken Advanced
Systems. Ray is a graduate of John Hopkins University. He has over 30 years of
practical and sales engineering experience with Government Agencies, DoD and the
Telecommunications community. Ray has also been very successful marketing
internationally and he holds special clearances with principal US Government
Agencies.
BANKING ARRANGEMENTS
The Company has a banking relationship with National Westminster Bank plc of
Mansfield for a line of credit in the amount of $560,000. This is to finance
working capital and is repayable on demand. Interest is charged at 3% above the
banks base rate on the first $560,000, thereafter at 6% above the banks base
rate. The Company also intends to rely upon future equity offerings to finance
its operations and acquisitions.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.
BUSINESS DEVELOPMENT
The Company is a successor by merger to ATNN, Inc., which was incorporated in
the State of Utah in 1984. ATNN, Inc. operated various businesses until 1994,
when it ceased operations and became a development stage company. The merger
took place in August 1997.
The Company is building a group of companies engaged in e-linking and
information technology applications. The Company's UK activities are organized
through a wholly owned intermediate holding company, EuroTelecom Corporation
Limited.
RESULTS OF OPERATIONS
<TABLE>
The following table sets forth certain operating information regarding
EuroTelecom:
<CAPTION>
AUDITED AUDITED
YEAR ENDED YEAR ENDED
DECEMBER 31 1998 DECEMBER 31 1997
-------------------------- -------------------------
<S> <C> <C>
Revenues................................ $64,000 $1,212,352
Cost of Goods Sold...................... $- $777,742
Net Earnings (Loss)..................... $(1,420,310) $(642,849)
Net Earnings (Loss) Per Share
From Continuing Operations.............. $(.195) $(.128)
<CAPTION>
AUDITED UNAUDITED
6 MONTHS ENDED 6 MONTHS ENDED
JUNE 30 1999 JUNE 30 1998
-------------------------- -------------------------
<S> <C> <C>
Revenues................................ $1,306,807 $32,000
Cost of Goods Sold...................... $793,365 $-
Net Earnings (Loss)..................... $(795,777) $(656,456)
Net Earnings (Loss) Per Share
from Continuing Operations............ $(.106) $(.122)
<CAPTION>
UNAUDITED UNAUDITED
3 MONTHS ENDED 3 MONTHS ENDED
SEPTEMBER 30 1999 SEPTEMBER 30 1998
-------------------------- -------------------------
<S> <C> <C>
Revenues................................ $1,208,537 $16,000
Cost of Goods Sold...................... $920,221 $-
Net Earnings (Loss)..................... $(769,998) $(175,539)
Net Earnings (Loss) Per Share
from Continuing Operations............ $(.065) $(.034)
</TABLE>
<PAGE>
<TABLE>
The following summary table presents comparative cash flows of EuroTelecom for
the year ended December 31, 1998, and the year ended December 31, 1997, and the
six month period ended June 30, 1999 and the six month period ended June 30
1998.
<CAPTION>
AUDITED AUDITED
YEAR ENDED YEAR ENDED
DECEMBER 31 1998 DECEMBER 31, 1997
-------------------------- -------------------------
<S> <C> <C>
Net cash used in operating activities....... $(330,153) $(49,659)
Net cash used in investing activities....... $(33,425) $(239,162)
Net cash provided by financing activities... $228,285 $348,981
<CAPTION>
AUDITED UNAUDITED
6 MONTHS ENDED 6 MONTHS ENDED
JUNE 30 1999 JUNE 30 1998
-------------------------- -------------------------
<S> <C> <C>
Net cash used in operating activities....... $(1,059,994) $(215,924)
Net cash used in investing activities....... $19,051 $44,859
Net cash provided by financing activities... $725,764 $190,973
<CAPTION>
UNAUDITED UNAUDITED
3 MONTHS ENDED 3 MONTHS ENDED
SEPTEMBER 30 1999 SEPTEMBER 30 1998
-------------------------- -------------------------
<S> <C> <C>
Net cash used in operating activities....... $(603,709) $(40,227)
Net cash used in investing activities....... $(199,971) $11,434
Net cash provided by financing activities... $474,988 $18M089
</TABLE>
At December 31, 1998, EuroTelecom had cash balances totalling $421.
The decrease in the assets of EuroTelecom from $1,026,128 at December 31, 1997
to $195,465 (a decrease of 81%) at December 31, 1998, resulted primarily from
the discontinued operation of a subsidiary company EuroTelecom Secure Networks
Limited.
The increase in the liabilities of EuroTelecom from $1,179,933 at December 31,
1997 to $1,284,460 (an increase of 8.8%) resulted primarily from the increase in
its business operations, number of employees, and the purchase of equipment,
furniture and fixtures. During fiscal 1998, shareholders' equity decreased from
$(153,805) to $(1,088,995) (a decrease of 608%). This decrease is primarily
attributable to the development of the company.
<PAGE>
The total revenues of EuroTelecom decreased from $1,212,352 during fiscal 1997
to $64,000 during fiscal 1998 (a decrease of 95%), following EuroTelecom Secure
Networks Limited discontinued operations. The subsidiary company EuroTelecom
Secure Networks Limited ceased trading in February 1999. Major contracts the
company was working on failed to materialise and it was considered appropriate
by the management of the holding company to cease trading.
The Company's cost of goods decreased from $777,742 during fiscal 1997 to $nil
during fiscal 1998; and decreased gross profit to $64,000 during fiscal 1998
from $434,610 during fiscal 1997.
Operating expenses increased from $1,008,355 in fiscal 1997 to $1,137,997 in
fiscal 1998 (an increase of 12.8%), arising primarily from increases in general
and administrative expenses and other support costs related to its level of
operations.
During fiscal 1998, EuroTelecom realized an operating loss from continuous
operations of ($1,128,387) compared to a loss of $(642,849) during fiscal 1997.
During fiscal 1998 EuroTelecom entered into discussions with U.S. Digital
Communications Inc (USDI) with a view to a possible merger or takeover.
Whilst these discussions were taking place USDI made two loans to EuroTelecom
Communications Inc; $260,000 and $250,000 repayable on March 31 1999 and July 31
1999 respectively. Both loans attracted interest at 10% p.a.
EuroTelecom repaid the first loan of $260,000. The second loan, together with
accrued interest, was assigned by USDI to Westbury Investments S.A., Scribe
Investments S.A. and DJF Associates Limited (the Assignees) for 50% of the total
balance outstanding. The Assignees were related parties to EuroTelecom as
stockholders.
The assignees then reassigned the net debt back to EuroTelecom; resulting in an
extinguishment of debt of $145,667.
In the six month period ended 30 June 1999, the Group achieved operating
revenues of $1,306,807, gross margins of $513,442, and a net loss of $795,777.
General and administrative expenses of $1,281,163 were incurred in the six month
period ended 30 June 1999, as opposed to $664,758 in the six month period ended
30 June 1998. Comparing the components of general and administrative expenses of
June 1999 to those of June 1998 shows the following; Directors' remuneration has
increased by 26%, and now represents 7.8% of the total. Consultancy fees have
remained at a similar level, and now represent 31.4% of the total. Wages and
salaries have increased by 3,580%, and now represents 30% of the total.
Telephone & office stationery expenses have increased by 390%, and now represent
4.8% of the total. Motor & travel expenses have increased by 160%, and now
represent 13.1% of the total. Advertising & general expenses have increased by
268%, and now represent 3% of the total. Legal & professional expenses have
increased by 36%, and now represent 5.6% of the total. Entertainment has
increased by 18%, and now represents 1% of the total. Rent, rates, insurance,
light & heat have increased by 5,560%, and now represent 3.3% of the total. In
future periods, it is envisaged that:- Directors' remuneration will remain
constant; Consultancy fees will decrease; Wages and salaries will increase as
additional contracts are undertaken; Telephone & office stationery expenses,
advertising & general expenses, legal & professional expenses, entertainment,
and rent, rates, insurance, light & heat will remain constant; Motor & travel
expenses are expected to increase as additional contracts are undertaken.
The acquisition of Easy IP Limited in April 1999 resulted in an increase in
revenues of $531,925 and a gross margin of $83,888. The resulting net loss of
$7508 was expected by management for this period.
The security division operating out of the Mexborough office, which covers CCTV
installations, monitoring and maintenance achieved revenues of $218,864, with a
gross margin of $163,794.
The defence division operating out of the Blandford office which covers the
supply of equipment to the Ministry of Defence, achieved revenues of $384,608,
with a gross margin of $169,619.
<PAGE>
The above margins are consistent with the industry sector and the EuroTelecom
management are confident that these can be maintained.
An additional amount of $171,410 was invoiced in the period for the
decentralisation of the control facility at Merryhill Shopping Centre.
Due to non-payment of this debt, the company has instigated legal proceedings
for it's recovery.
The company in the six month period ended 30 June 1999 issued common stock for
cash under Rule 504 of Regulation 1) under the Securities Act of 1933 as
follows:
NUMBER OF SHARES AMOUNT
1999 March 500,000 325,000
1999 April 550,000 357,500
1999 May 275,000 178,750
1999 June 16,666 10,830
1,341,666 872,080
The common stock was issued at 65 cents, which the directors considered to be a
fair value.
FOR THE QUARTER ENDED 30 SEPTEMBER 1999
The total assets of Eurotelecom Communications Inc have increased in the three
month period from 30 June 1999 to 30 September 1999 by $610,505, an increase of
55%. The increase is mainly reflected in an increase in accounts receivable by
$228,908 and inventories by $165,611.
The increase in the company's trading activities has resulted in this movement;
the management are confident that the collectability of the debts is good and
the obsolence of the stock is minimal.
The company has also purchased assets for the business totalling $199,971.
Additional equity has been raised in the period; equity sales realised
$1,106,175. The sales have been achieved through issuing Rule 144 Common Stock.
The company's loan notes totalling $800,000 with a 10% interest charge were
converted into common stock on 1 July 1999. The additional $306,175 was issued
in September 1999.
The total notes payable has decreased from $941,891 to $178,917 in the period, a
reduction of 81%. The bank overdraft increased from $380,662 to $719,807 and the
accounts payable increased from $753,757 to $1,569,764.
The additional equity raised in the period has been partially used to fund the
losses and help invest in the development of the company.
The net revenues for the three months ended 30 September 1999 were $1,208,537,
an increase on the corresponding period of $1,192,537. The increased revenues
produced a gross profit of $288,316 compared to $16,000 in the corresponding
period in 1998.
Selling and administrative expenses in the quarter have increased by $493,024;
by 291% on the corresponding quarter in 1998. This was expected due to the
increased revenue activity in the period.
Additional expenditure has also been incurred in taking on additional staff to
take account of the planned increase in revenues for the following quarter.
The benefits of this additional expenditure was achieved in the second quarter.
In addition, selling and administrative expenses for the quarter include
professional costs of $68,052 relating to the ongoing advice with potential
acquisitions, etc. Motor and travel expenses of $116,284 were also incurred in
the period, an increase of $112,284 on the corresponding quarter in 1998.
The interest charge in the quarter amounted to $32,241, an increase of $15,485
on the same period.
The conversion of the loan notes at 1 July 1999 assisted in keeping the interest
charge to a minimum.
The CCTV business operating out of Mexborough achieved revenues of $172,118 and
a gross margin of $109,572.
The security division operating out of Blandford achieved revenues of $369,075
and a gross margin of $43,828.
The air conditioning division operating out of Huddersfield achieved its first
revenues in the quarter of $51,878 and a gross margin of $12,531.
Easy IP, the acquisition included in April 1999 contributed revenues of $592,700
and a gross margin of $163,620.
Included in receivables was an amount invoiced to Chelsfield plc, a customer,
for $181,000. This is currently in dispute and the company has entered into
litigation with the customer to recover the monies due. The directors consider
it appropriate to eliminate this receivable until the outcome of the litigation
is settled.
The company made an investment in a company in USA for shares. The total
investment was made in 1997 and amounted to $89,397. A provision of 50% was made
against this investment in the financial statements for the period ended 31
December 1997. It is now considered prudent to write the cost of the investment
down to nil. This results in a further provision of $44,597 in the balance
sheet.
The company accounted for $128,000 of work in progress for a number of its
activities. Following a review of the revenues produced from these activities it
was again considered prudent by the directors to write off this amount.
<PAGE>
CAPITAL EXPENDITURES
EuroTelecom has incurred capital expenditures for equipment and office furniture
used in its operations. Capital expenditures during the year ended December 31,
1998, totalled $33,425. There are currently no material capital expenditure
plans or material acquisition plans.
CAPITAL RESOURCES
EuroTelecom's capital resources have been provided primarily by capital
contributions from its stockholders and through an offering of its Common Stock
under Rule 504 of Regulation D under the Securities Act of 1933 which realized
(pound)872,080
LIQUIDITY
The ability of the Company to satisfy its obligations depend in part upon its
ability to reach a profitable level of operations and securing short and
long-term financing for development of its commercial and residential products.
There is no assurance that short and long term financing can be obtained to
fulfill EuroTelecom's capital needs. Without the short or long term financing,
EuroTelecom will attempt to sell additional common stock to meet its current and
future capital needs.
The management of EuroTelecom have prepared detailed financial forecasts for the
eighteen month period ended December 31 2000. They are confident that the
targets are achievable thus generating sufficient cash to support the company's
operations. Management are also in discussions with National Westminster Bank
plc to increase it's line of credit. Additional sources of capital raising to
fund the growth of the business are also constantly being scrutinised.
ITEM 3. DESCRIPTION OF PROPERTY.
CORPORATE OFFICE
EuroTelecom currently leases its corporate offices located at Mexborough
Business Centre, College Road, Mexborough, Yorkshire. The lease agreement is for
a one year term and covers approximately 2,000 square feet. The monthly payments
are $720.
EuroTelecom also leases offices located as follows:-
1. Ollerton Road, Tuxford, Nottinghamshire.
Lease term 1 year from 3 February 1999
Square footage 1594 square feet
Monthly payments (pound)583 per month
2. 53 South Denes Road, Great Yarmouth, Norfolk.
Lease term 1 year from 31 May 1999 Square footage 800 square feet Monthly
payments (pound)475 per month.
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The total number of shares of Common Stock of EuroTelecom beneficially owned by
each of the officers and directors, and all of such directors and officers as a
group, and their percentage ownership of the outstanding Common Stock of
EuroTelecom as of November 10 1999, are as follows:
<TABLE>
<CAPTION>
PER CENT
OF COMMON
MANAGEMENT SHAREHOLDERS (1) SHARES BENEFICIALLY OWNED STOCK
- --------------------------------------- -------------------------- --------------------------
<S> <C> <C>
Philip Shaun Derry................... 946,820 6.4%
Mexborough Business Centre
College Road
Mexborough
Yorkshire
United Kingdom
S64 9JP
Robert Iain Hay...................... 273,400 1.8%
Mexborough Business Centre
College Road
Mexborough
Yorkshire
United Kingdom
S64 9JP
Andrew Krawchuk...................... 176,000 1.2%
Mexborough Business Centre
College Road
Mexborough
Yorkshire
United Kingdom
S64 9JP
Ian Stuart Reay...................... 110,000 0.74%
Mexborough Business Centre
College Road
Mexborough
Yorkshire
United Kingdom
S64 9JP
Peter Drake.......................... 931,820 6.4%
Mexborough Business Centre
College Road
Mexborough
Yorkshire
United Kingdom
S64 9JP
John Spackman........................ 75,000 0.51%
Mexborough Business Centre
College Road
Mexborough
Yorkshire
United Kingdom
S64 9JP
Ray May.............................. 269,377 1.82%
Mexborough Business Centre
College Road
Mexborough
Yorkshire
United Kingdom
S64 9JP
</TABLE>
<PAGE>
(1) Except as otherwise noted, it is believed by EuroTelecom that all persons
have full voting and investment power with respect to the shares indicated.
Under the rules of the Securities and Exchange Commission, a person (or group of
persons) is deemed to be a "beneficial owner" of a security if he or she,
directly or indirectly, has or shares the power to vote or to direct the voting
of such security, or the power to dispose of or to direct the disposition of
such security. Accordingly, more than one person may be deemed to be a
beneficial owner of the same security. A person is also deemed to be a
beneficial owner of any security which that person has the right to acquire
within 60 days, such as options or warrants to purchase the Common Stock of
EuroTelecom.
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of EuroTelecom's Common Stock by each shareholder who beneficially
owns more than five percent (5%) of EuroTelecom's Common Stock, the number of
shares beneficially owned by each and the percent of outstanding Common Stock so
owned of record as of November 10 99. It is believed by EuroTelecom that all
persons listed have sole voting and investment power with respect to their
shares, except as otherwise indicated.
<TABLE>
<CAPTION>
PER CENT OF
NAME AND ADDRESS OF TITLE OF SHARES OUTSTANDING
BENEFICIAL OWNER CLASS BENEFICIALLY OWNED COMMON STOCK
- --------------------------------------- -------------------- -------------------- ---------------------
<S> <C> <C> <C>
Philip Shaun Derry Common Stock 946,820 6.5%
Mexborough Business Centre
College Road
Mexborough
Yorkshire
United Kingdom
S64 9JP
Peter Drake Common Stock 931.820 6.4%
Mexborough Business Centre
College Road
Mexborough
Yorkshire
United Kingdom
S64 9JP
Scribe Investments SA Common Stock 2,475,000 17.1%
2 Serjeants Inn
London
(Mark Sieff)
Westbury Investments SA Common Stock 2,475,000 17.1%
2 Serjeants Inn
London
(Mark Horrocks)
</TABLE>
(1) Except as otherwise noted, it is believed by EuroTelecom that all persons
have full voting and investment power with respect to the shares indicated.
Under the rules of the Securities and Exchange Commission, a person (or group of
persons) is deemed to be a "beneficial owner" of a security if he or she,
directly or indirectly, has or shares the power to vote or to direct the voting
of such security, or the power to dispose of or to direct the disposition of
such security. Accordingly, more than one person may be deemed to be a
beneficial owner of the same security. A person is also deemed to be a
beneficial owner of any security which that person has the right to acquire
within 60 days, such as options or warrants to purchase the Common Stock of
EuroTelecom.
<PAGE>
WARRANTS
223,600 Warrants were issued in 1997 at an exercise price of $2.00 per share.
The exercise date is December 31, 1999.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
Board of Directors:
NAME AGE POSITION
Philip Shaun Derry 52 President and C.E.O.
John Spackman 67 Chairman
Andrew Krawchuk 53 Vice President Marketing
There is no family relationship between or among the above directors and
officers. EuroTelecom's success will depend largely on the efforts and abilities
of EuroTelecom's senior management. In particular, EuroTelecom is dependent upon
Philip Shaun Derry, Chief Executive Officer. The loss of services of senior
management could have a substantial adverse effect on EuroTelecom.
ITEM 6. EXECUTIVE COMPENSATION.
No executive officer or director of EuroTelecom received compensation in excess
of $100,000 during its fiscal year ended December 31, 1998.
Compensation for the Chief Executive Officer, Mr. P S Derry, was as follows:-
PERIOD ENDED 31 DECEMBER 1997 31 DECEMBER 1998 30 JUNE 1999
Total $Nil $52,056 $57,600
EuroTelecom does not have a pension plan, a profit sharing plan, or similar
plans for the benefit of its officers, directors or employees. However,
EuroTelecom reserves the right to establish any such plans in the future.
Directors of EuroTelecom who do not serve as officers thereof are not currently
compensated by EuroTelecom for meeting attendance or otherwise, but are entitled
to reimbursement for their travel expenses. EuroTelecom does not pay additional
amounts for committee participation or special assignments of the Board of
Directors.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
There were no related party transactions in the fiscal year 1998 or 1997.
<PAGE>
ITEM 8. DESCRIPTION OF SECURITIES.
EuroTelecom is authorised to issue 20,000,000 shares of Common Stock, $0.01 par
value. At November 10 1999, there were 14,798,102 shares of Common Stock issued
and outstanding.
There were 714 stockholders of record of the Common Stock of EuroTelecom as of
November 10 1999.
EuroTelecom is authorised to issue 5,000,000 shares of Preferred Stock, $0.01
par value. There are no shares of Preferred Stock issued and outstanding.
COMMON STOCK
Holders of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors, out of funds legally available, without any
preference. Holders of Common Stock are entitled to one vote per share.
Cumulative voting is not allowed for purposes of the election of directors.
Thus, the holders of more than 50% of the shares voting for directors can elect
all directors. The holders of the Common Stock of EuroTelecom have no preemptive
rights to purchase new issues of the securities of EuroTelecom. There are no
redemption or conversion features attached to the Common Stock.
At the present time, EuroTelecom does not intend to pay any dividends on its
Common Stock. Upon liquidation or dissolution of EuroTelecom, holders of Common
Stock are entitled to receive pro rata, either in cash or in kind, all of the
assets of EuroTelecom after payment of debts.
DELAWARE CORPORATE LAW AND CERTAIN BY-LAW PROVISIONS
EuroTelecom is a Delaware corporation, and may become subject to the
anti-takeover provisions of the Delaware General Corporation Law (the "Delaware
Law"). In general, Delaware Law prevents take-over offers to acquire equity
securities of a Delaware corporation if the offeror would become a beneficial
owner of more than 20% of any class of outstanding equity securities, and other
similar provisions, subject to certain exceptions such as the written approval
of the board of directors. The existence of these provisions would be expected
to have an anti-takeover effect, including attempts that might result in a
premium over the market price for the shares of Common Stock held by
stockholders.
Article II, Section 5 of EuroTelecom's By-Laws provides that only EuroTelecom's
President, Secretary, a majority of the members of EuroTelecom's Board of
Directors or at the written request of the holders of at least 50% of the
outstanding voting power may call a special meeting of stockholders. These
provisions of the By-Laws could discourage potential acquisition proposals and
could delay or prevent a change in control of EuroTelecom. Such provisions also
may have the effect of preventing changes in the management of EuroTelecom.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar f or the Common Stock of EuroTelecom is Olde
Monmouth Stock Transfer Co. Inc, Memorial Parkway, Suite 101, Atlantic
Highlands, NJ 07716.
REPORTS TO STOCKHOLDERS
EuroTelecom will furnish its shareholders with annual reports containing the
financial statements of EuroTelecom examined by independent certified public
accountants. EuroTelecom presently intends to issue unaudited quarterly reports
and may distribute other reports to the stockholders as it deems appropriate.
EuroTelecom has amended its fiscal year end from December 31 to June 30. The
audited six months accounts to June 30 1999 are included at exhibit 3(ii).
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
GENERAL
The Common Stock of EuroTelecom is traded on the Electronic Bulletin Board
over-the-counter market (OTCBB), and is quoted under the symbol EUTC.
MARKET PRICE
For all stock issued as compensation, the Board of EuroTelecom valued the
stock at fair market value.
When the trading price of EuroTelecom's Common Stock is below $5.00 per share,
the Common Stock is considered to be "penny stocks" that are subject to rules
promulgated by the Securities and Exchange Commission (Rule 15g-1 through 15g-9)
under the Securities Exchange Act of 1934. These rules impose significant
requirements on brokers under these circumstances, including: (a) delivering to
customers the Commission's standardised risk disclosure document; (b) providing
to customers current bid and offers; (c) disclosing to customers the
brokers-dealer and sales representatives compensation; and (d) providing to
customers monthly account statements.
The following table sets forth the range of high and low closing bid prices per
share of the Common Stock of EuroTelecom as reported by National Quotation
Bureau, L.L.C. for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED HIGH LOW
31 DECEMBER 1998 BID (1) BID (1)
- ----------------------------- -------------------------- --------------------------
<S> <C> <C>
1st Quarter................. $0.50 $0.37
2nd Quarter................. $2.50 $2.25
3rd Quarter................. $0.94 $0.75
4th Quarter................. $0.28 $0.28
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED HIGH LOW
31 DECEMBER 1999 BID (1) BID (1)
- ----------------------------- -------------------------- --------------------------
<S> <C> <C>
1st Quarter (1)............. $1.72 $1.50
2nd Quarter ................ $2.06 $1.75
3rd Quarter ................ $2.56 $2.28
</TABLE>
<PAGE>
(1) EuroTelecom is unaware of the factors which resulted in the significant
fluctuations in the prices per share during the periods being presented,
although it is aware that there is a thin market for the Common Stock, that
there are frequently few shares being traded and that any sales activity
significantly impacts the market.
The closing bid and ask prices of the Common Stock of EuroTelecom on August 31
1999, were $17/8 and $2.00 respectively.
DIVIDENDS
EuroTelecom has not paid any dividends on its Common Stock and does not expect
to do so in the foreseeable future. EuroTelecom intends to apply its earnings,
if any, in expanding its operations and related activities.
The payment of cash dividends in the future will be at the discretion of the
Board of Directors and will depend upon such factors as earnings levels, capital
requirements, EuroTelecom's financial condition and other factors deemed
relevant to the Board of Directors. In addition, EuroTelecom's ability to pay
dividends may become limited under future loan agreements of EuroTelecom which
may restrict or prohibit the payment of dividends.
ITEM 2. LEGAL PROCEEDINGS.
There are currently no legal proceedings which EuroTelecom is involved in.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
During the period 1997 through 1999, the Company issued shares to the
following persons as compensation for services:
YEAR NAME NUMBER OF SHARES
- ---- ---- ----------------
1997 Basic Capital Corp 34,500
Olympic Capital Corp 161,000
Target Mall.Com 84,077
Type Investment Holdings 161,000
Wing Capital 292,900
1998 Capital York 250,000
Type Investment Holdings 220,080
Olympic Capital 105,814
Target Mall.Com 74,126
Ray May 294,000*
John Banas 250,000
P Taylor 30,000**
1999 D Edwards 250,000**
G Maud 120,000**
D Newett 120,000**
J Millthorpe 10,000**
D Hutton 10,000**
* Includes cash purchase of 44,000 shares at $1.00 per share.
** Non-U.S. residents. Offerings also exempt from registration
under Regulation S issued by the Securities and Exchange
Commission
<PAGE>
These securities were issued in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act of 1933 as amended.
The above mentioned individuals and entities were sophisticated investors who
were knowledgeable about the Company's operations and financial condition; they
were able to evaluate the risks and merits of receipt of the shares, and they
each agreed to accept the shares as compensation.
During 1997, the Company issued 3,998,860 shares in a stock for stock
acquisition of the shares of capital stock of EuroTelecom , Inc. These
securities were issued in reliance on the exemption from registration provided
by Section 4(2) of the Securities Act of 1933 as amended. The purchaser and its
shareholders were sophisticated investors who were knowledgeable about the
Company's operations and financial condition; they were able to evaluate the
risks and merits of receipt of the shares, and they each agreed to accept the
shares as compensation.
During 1997, the Company offered and sold 223,600 shares of the
Company's Common Stock to persons and entities who were not citizens or
residents of the United States of America in offerings exempt from registration
under Regulation S issued by the Securities and Exchange Commission at a per
share cash offer price of not less than $1.00.
During 1997 and 1998 the Company issued 1,710,286 shares at a price of
not less than $.25 per share, with the requirements that (i) share offers and
sales be made either to "accredited investors," as that quoted term is defined
in Rule 215, as amended (the "Act"), and/or up to a maximum of 35 non-accredited
investors each of whom, in the judgment of the Company's representatives, is
determined to have such knowledge and experience in high risk equity investments
and other financial matter as to be capable of evaluating the relative risks and
merits of an investment in the shares, as well as the economic worth and
liquidity to be able to sustain a complete loss of his investment in the shares;
(ii) each such offer and sale be undertaken only in accordance with the
transactional exemption from registration afforded by Rule 504 of Regulation D,
as promulgated under Section 3(b) of the Act; and (iii) there was no minimum
number of shares which may be acquired by any qualified purchaser. Of such
shares, 250,000 were sold for services rendered.
During 1998 and 1999 the Company issued 246,000 shares as bonus
payments to employees. These securities were issued in reliance on the exemption
from registration provided by Section 4(2) of the Securities Act of 1933 as
amended. In addition these shares were issued to persons who were not citizens
or residents of the United States of America in offerings exempt from
registration under Regulation S issued by the Securities and Exchange Commission
During 1999, the Company issued 200,000 shares in an asset acquisition
of all of the assets of RTC, Inc. These securities were issued in reliance on
the exemption from registration provided by Section 4(2) of the Securities Act
of 1933 as amended. The purchaser is a sophisticated investor who was
knowledgeable about the Company's operations and financial condition; he was
able to evaluate the risks and merits of receipt of the shares, and he and RTC,
Inc. agreed to accept the shares as payment.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 9 of the Certificate of Incorporation of the Company provides that to
the to the fullest extent permitted by the Delaware General Corporation Law, a
director of the Corporation shall not be personally liable to the Corporation or
its stockholders for monetary damage for breach of fiduciary duty as a director.
Section 7.1 of the Bylaws of the Company provides, in essence, that with regard
to non-derivative claims, the Company shall indemnify any person who was or is a
party or is threatened to be made a party to any pending or threatened suit or
proceeding, civil criminal or otherwise, by reason of the fact that he is or was
a director, officer, employee, trustee or agent of the Company or was serving at
the request of the Company as director, officer, employee, trustee or agent of
another entity, against all expenses incurred by him, including but not limited
to legal fees, judgements and penalties and amounts paid in settlement actually
and reasonably incurred, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interest of the Company, or with
respect to a criminal proceeding, had no reasonable cause to believe his conduct
was unlawful.
<PAGE>
Section 7.2 of the By-laws provides, in essence, that with regard to derivative
suits, the Company shall indemnify any person who was or is a party or is
threatened to be made a party to any pending or threatened suit or proceeding in
the right of the Company, to procure a judgement in its favor by reason of the
fact that he is or was an agent of the Company, against all expenses, including
attorneys fees, actually and reasonably incurred by him, in connection with the
defense, settlement or appeal of such action, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company, except that no indemnification shall be made if such persons shall
have been adjudged liable to the Company unless and to the extent that the
Delaware Court of Chancery or the court in which such action was brought shall
determine that, despite such adjudication, such person is fairly and reasonably
entitled to be indemnified.
<PAGE>
The Eleventh Article of the Articles of Incorporation of the Company provides
that the Company shall, to the fullest extent permitted by the provisions of
Sections 145 of the General Corporation Law of Delaware, as the same may be
amended and supplemented, indemnify any and all persons whom it shall have power
to indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for shall not be deemed exclusive of any other rights
to which those indemnified may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 6.10 of the Bylaws of the Company provides that the Company shall
indemnify all of its offers and directors, past, present and future, against any
and all expenses incurred by them, including but not limited to legal fees,
judgments and penalties which may be incurred, rendered or levied in any legal
action brought against any or all of them for or on account of any act or
omissions alleged to have been committed while acting within the scope of their
duties as officers or directors of the Company.
PART III
ITEM 1. INDEX TO EXHIBITS.
EXHIBIT
3(i) EuroTelecom Communications Inc. and Subsidiaries
- Consolidated Financial Statements - December 31 1998 (1)
3(ii) EuroTelecom Communications Inc and Subsidiaries
- Consolidated Financial Statements - June 30, 1999. (1)
3(ii)a EuroTelecom Communications Inc and Subsidiaries
- Consolidated Financial Statements - September 30, 1999 (1)
3(iii) Share Sale Agreement
- Shareholders of Easy IP Ltd and EuroTelecom Corporation Limited (2)
3(iv) Service Agreement
- Stuart Reay (2)
3(v) By-laws of American Telemedia Network Inc. (2)
3(vi) Agreement and Plan of Merger of ATN Inc and American Telemedia Network
Inc. (2)
3(vii) Agreement of Sale of RTC Inc to EuroTelecom Communications Inc. (2)
3(viii) By Laws of ATN Inc. (2)
3(ix) Certificate of Amendment of Certificate of Incorporation of Wing
Systems Inc. (2)
3(x) Certificate of Incorporation of American Telemedia Network Inc. (2)
3(xi) Certificate of Incorporation of Wing Systems Inc. (2)
3(xii) Corporate Records of Wing Systems Inc. (2)
3(xiii) Employment Agreement Ray May and EuroTelecom Communication Inc. (2)
3(xiv) Minutes of Special Meeting of Stockholders of American Telemedia Network
Inc. (2)
3(xv) Easy IP Limited Financial Statements - 31 March 1999 (3)
3(xvi) Easy IP Limited Financial Statements - 30 June 1999 (3)
- -------------
(1) Filed herewith
(2) Filed as an exhibit to the Registrant's Form 10SB12G filed with the
Securities and Exchange Commission on November 5, 1999 (Registration No.
000-27673) and incorporated herein by reference.
(3) To be filed
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, hereunto duly authorized.
EuroTelecom Communications Inc.
Date: September 1999
By: /s/ PHILIP SHAUN DERRY
Philip Shaun Derry
Director, Chief Executive Officer,
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the inclusion in this Form 10-SB Registration Statement of our
report date August 8 1999 on our audit of the financial statements of
EuroTelecom Communications, Inc. We also consent to the reference to our firm
under the caption "Experts".
Crouch Bierwolf & Chisholm
Certified Public Accountants
Salt Lake City, Utah
EXHIBIT 3(i)
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1998
<PAGE>
C O N T E N T S
Accountants' Report ......................................................... 3
Consolidated Balance Sheets ................................................. 4
Consolidated Statements of Operations ....................................... 6
Consolidated Statements of Stockholders' Equity.............................. 7
Consolidated Statements of Cash Flows ....................................... 8
Notes to the Consolidated Financial Statements .............................. 9
2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of EuroTelecom Communications Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheets of EuroTelecom
Communications Inc. and subsidiaries (formerly ATNN, Inc.) as of December 31,
1998 and 1997 and the related consolidated statements of operations,
consolidated stockholders' equity and consolidated cash flows for years ended
December 31, 1998, 1997, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of EuroTelecom
Communications Inc. and subsidiaries as of December 31, 1998 and 1997 and the
results of its operations and cash flows for the years ended December 31, 1998,
1997, and 1996 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 4, the
Company's recurring operating losses and lack of working capital raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to those matters are also described in Note 4. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Crouch Bierwolf & Chisholm
Crouch Bierwolf & Chisholm
Certified Public Accountants
Salt Lake City, Utah
August 8, 1999
3
<PAGE>
<TABLE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
------
<CAPTION>
DECEMBER, 31 DECEMBER, 31
1998 1997
-------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 421 $ 69,810
Accounts receivable - 442,187
Inventory - 76,637
Prepaid expenses 54,794 342,878
Other current assets 42,010 29,802
-------------- --------------
Total current assets 97,225 961,314
PROPERTY, PLANT AND EQUIPMENT, NET 53,643 20,218
INVESTMENTS AT COST 44,597 44,596
-------------- --------------
TOTAL ASSETS $ 195,465 $ 1,026,128
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
<TABLE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
-------------- --------------
<S> <C> <C>
CURRENT LIABILITIES:
Bank Overdraft $ 65,904 $ -
Accounts payable - related party - 56,000
Accounts payable 210,488 492,876
Accrued expenses 47,234 253,918
Accrued income and other taxes 37,625 329,139
Current maturities of long-term obligations 14,627 48,000
-------------- --------------
Total current liabilities 375,878 1,179,933
-------------- --------------
LONG TERM LIABILITIES:
Notes Payable (Note 3) 923,209 48,000
Less: Current maturities of long-term debt (14,627) (48,000)
-------------- --------------
Total long term liabilities 908,209 -
-------------- --------------
TOTAL LIABILITIES 1,284,460 1,179,933
-------------- --------------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $0.01 par value, 20,000,000 authorized
shares; 6,519,016 and 5,036,616 issued and
outstanding, at December 31, 1998 and December
31, 1997, respectively 65,191 50,367
Additional paid-in capital 20,726,382 20,204,886
Less: subscription receivable (91,214) (40,014)
Accumulated deficit (21,789,354) (20,369,044)
-------------- --------------
Total stockholders' equity (deficit) (1,088,995) (153,805)
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 195,465 $ 1,026,128
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
<TABLE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1998 1997 1996
-------------------- -------------------- -----------------
<S> <C> <C> <C>
REVENUES $ 64,000 $ 1,212,352 $ -
COST OF SALES - 777,742 -
-------------------- -------------------- -----------------
GROSS PROFIT 64,000 434,610 -
-------------------- -------------------- -----------------
GENERAL & ADMINISTRATIVE EXPENSES 1,137,997 1,008,355 1,205
-------------------- -------------------- -----------------
OPERATING LOSS (1,073,997) (573,745) (1,205)
-------------------- -------------------- -----------------
OTHER INCOME AND (EXPENSES)
Forgiveness of debt - - 4,136
Profit/(Loss) on investment - (44,800) -
Interest expense (54,290) (24,304) -
-------------------- -------------------- -----------------
TOTAL OTHER INCOME AND EXPENSES (54,290) (69,104) 4,136
-------------------- -------------------- -----------------
INCOME (LOSS) BEFORE INCOME TAXES $ (1,128,287) $ (642,849) $ 2,931
-------------------- -------------------- -----------------
PROVISION FOR INCOME TAXES 100 - 100
-------------------- -------------------- -----------------
NET INCOME (LOSS) $ (1,128,387) $ (642,849) $ 2,831
-------------------- -------------------- -----------------
NET (LOSS) PER COMMON SHARE
BEFORE DISCONTINUED OPERATIONS $ (0.246) $ (0.128) $ 0.039
==================== ==================== =================
LOSS ON DISCONTINUED OPERATIONS $ (291,923) $ - $ -
==================== ==================== =================
NET LOSS AFTER EXTRAORDINARY ITEM $ (1,420,310) $ (642,849) $ 2,831
==================== ==================== =================
WEIGHTED AVERAGE OF COMMON SHARES 5,777,816 5,036,616 72,320
==================== ==================== =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
<TABLE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
From January 1, 1997 through December 31, 1998
<CAPTION>
Common Stock Retained
------------------------------- Paid-In Earnings Subscription
Shares Amount Capital (Deficit) Receivable
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1997 76,356 $ 764 $ 19,601,257 $ (19,559,517) $ -
Shares issued for services 570 5 662 - -
Reverse stock split 117.05941 to 1 - - - - -
Shares issued to round up fractions 253 3 (3) - -
Free trading stock for services 734,477 7,345 256,126 - -
Free trading stock for cash 223,600 2,236 336,869 - -
Restricted shares issued for cash 2,500 25 9,975 - -
EuroTelecom Inc. (net of cancellations)
- restricted shares in a
stock-for-stock acquisition 3,998,860 39,989 - - -
Less: Stock subscription - - - - (40,014)
Cash issued to acquire public shell - - - (166,678) -
Net loss for period ended
December 31, 1997 (642,849) -
-------------- -------------- -------------- -------------- --------------
Balance December 31, 1997 5,036,616 50,367 20,204,886 (20,369,044) (40,014)
Shares issued during 1998:
Consulting services 1,280,000 12,800 457,200 - -
Employee bonuses 151,200 1,512 13,608 - -
Subscription agreement 51,200 512 50,688 - (51,200)
Net loss for period ended
December 31, 1998 - - - (1,420,310) -
-------------- -------------- -------------- -------------- --------------
Balance December 31, 1998 6,519,016 $ 65,191 $ 20,726,382 $ (21,789,354) $ (91,214)
============== ============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
<TABLE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<CAPTION>
December 31,
------------------------------------------------------------
1998 1997 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $ (1,420,310) $ (642,849) $ 2,831
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 22,606 7,670 -
Loss on discontinued operations 291,923 - -
Stock issued for services 470,000 264,137 -
Changes in current assets And liabilities:
Receivables 442,187 (409,233) -
Inventories 76,637 (76,637) -
Other current assets 275,876 (372,680) -
Accrued expenses (206,684) 583,057 -
Accounts payable (282,388) 548,876 (4,136)
Other - 48,000 -
----------------- ----------------- -----------------
Net cash provided by (used) by
operating activities (330,153) (49,659) (1,305)
----------------- ----------------- -----------------
Cash flows from Investing Activities:
Equipment (33,425) (27,888) -
Purchase shell - (166,678) -
Investments - (44,596) -
----------------- ----------------- -----------------
Net cash provided by (used in)
investing activities (33,425) (239,162) -
----------------- ----------------- -----------------
Cash Flows from Financing Activities
Proceeds from issuance of
common stock - 348,981 -
Proceeds from issuance of debt
net of repayments 294,189 - -
----------------- ----------------- -----------------
Increase (decrease) in Cash (69,389) 60,160 (1,305)
Cash and Cash Equivalents
at beginning of period 69,810 9,650 13,353
----------------- ----------------- -----------------
Cash and Cash Equivalents
at end of period $ 421 $ 69,810 $ 12,048
================= ================= =================
Supplemental Cash Flow Information:
Cash paid for interest $ 4,736 $ 24,310 $ -
Cash paid for income taxes $ - $ - $ 100
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The financial statements presented are those of EuroTelecom
Communications, Inc. (formerly ATNN, Inc.) and its subsidiaries (the
Company).
EuroTelecom Communications, Inc. was incorporated under the laws of
the State of Utah in 1984. The principal business of the Company
through November 1988 was to sell point-of-purchase advertising
services to national and local advertisers using Ad Centers located
in shopping malls across the United States. In November 1988, ATNN
discontinued its advertising business and purchased a truck stop
business located in Brooks, Oregon which was comprised of a
convenience store, a fast food restaurant, and fueling facilities for
trucks and passenger cars. In September 1989, the Company acquired
all of the outstanding common stock of Meadow Valley Constructors
(MVC), a privately held interstate bridge construction company,
located in Phoenix, Arizona. On July 13, 1990, the Company entered
into a rescission agreement with the former stockholders of MVC. The
Company terminated its interests in MVC.
The Company continued in the truck stop business until August of 1993
when the Company conveyed the truck shop business to American
Telemedia Network, Inc. (ATN) in lieu of foreclosure. ATN assumed
possession of the assets and related liabilities.
On August 1, 1997 the Company consummated a reverse merger pursuant
to an agreement dated July 10, 1997. The principle elements of the
reverse merger were as follows:
(a) a 1 for 117.05941 reverse split of the Company's 11,705,941
shares, leaving 100,000 common shares outstanding;
(b) the issuance of 5,865,000 post-reverse split shares to the
shareholders of EuroTelecom Inc. (EuroTelecom Inc. was
incorporated in the State of Delaware on December 19, 1996
under the name Wing Systems Inc. and changed its name to
EuroTelecom Inc. on January 31, 1997) of which 1,866,140
shares were subsequently cancelled due to non-performance of
consulting services;
(c) the issuance of 734,477 net post-reverse split shares to
consultants in consideration of services rendered in
connection with the transaction.
The Company changed its name to EuroTelecom Communications Inc. on
August 11, 1997.
The Company is seeking to build a group of companies engaged in
telecommunications and related activities. The Company's UK
activities are organized through a wholly owned intermediate holding
company, EuroTelecom Corporation Limited.
9
<PAGE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
b. Subsidiary activity
On September 16, 1997 a wholly owned subsidiary company, EuroTelecom
Secure Networks Limited (Secure Networks), was incorporated in the UK
to provide certain internet technology and communication products and
services formerly carried on by OSPL (UK) Limited, which company had
been place in administration, and other related services, similar to
EuroTelecom. On February 19, 1999, Secure Networks was placed into
voluntary liquidation. As a result, the assets and liabilities of
Secure Networks have been removed from the consolidated balance sheet
and recorded as discontinued operations on the consolidated statement
of operations.
c. Basis of Presentation
The consolidated financial statements present the consolidated
financial position of the Company and its subsidiary EuroTelecom
Corporation Limited. Secure Networks activity is recorded as
discontinued operations in the consolidated financial statements since
it ceased operations on February 19, 1999. All significant
inter-company accounts and balances have been eliminated on
consolidation.
d. Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash at bank and
temporary investments with original maturities of 90 days or less at
the date of purchase.
e. Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and revenues and expenses during the
reporting period. In these financial statements, assets, liabilities
and earnings involve reliance on management's estimates. Actual
results could differ from those estimates.
f. Provision for Income Taxes
The Company accounts for income taxes based on the provisions of
Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes (SAFS 109"). Under SFAS 109, the liability method is
used for accounting for income taxes, and deferred tax assets and
liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities.
No provision for income taxes have been recorded due to net operating
loss carryforwards totaling approximately $20,000,000 that will be
offset against future taxable income and will continue to expire
through the year 2019. These NOL carryforwards begin to expire in the
year 1999. No tax benefit has been reported in the financial
statements because the Company believes there is a 50% or greater
chance the carryforward will expire unused.
10
<PAGE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Tax Assets:
NOL Carryforwards $ 7,408,300 $ 7,010,300
Valuation Allowance (7,408,300) (7,010,300)
---------------- ----------------
Total $ - $ -
================ ================
</TABLE>
g. Recognition of Revenue and Expenses
The Company recognizes income and expenses on the accrual basis of
accounting.
h. Foreign Currencies
Transactions in foreign currencies are recorded using the rate of
exchange at the date of the transaction. Assets and liabilities are
translated using the exchange rate at the balance sheet date. Since
the exchange rate has remained stable between the two currencies, no
foreign currency exchange adjustment was recorded.
i. Inventories
Inventories are stated at lower of cost or market using the First-in,
First-out method.
j. Property, Plant and Equipment
Property, Plant and Equipment is stated at cost. Major renewals and
improvements are capitalized while expenditures for maintenance and
repairs are charged to operations as incurred. Depreciation is
computed on the straight-line method over the estimated useful life
up to five years.
Equipment at December 31, 1998 consist of computers and machinery
(net) $53,643. Depreciation expense was $22,606 and $7,670 for 1998
and 1997, respectively.
k. Net Income (Loss) Per Share
The computable of net income/(loss) per share is based on the
weighted average number of shares outstanding during the period.
l. Research and Development
The Company did not incur any research and development costs for the
years ended December 31, 1998 or December 31, 1997.
m. Profit/(Loss) on Investment
Marketable equity securities are stated at market value in accordance
with Financial Accounting Standards "FAS") No. 115. Valuation of
other security investments is based on acquisition costs. Markdowns
are made to reflect significant (permanent) impairment in values and
are reflected in the write down of $44,800 in December 31, 1997.
Gains and losses on sale of securities available for sale are
determined using a first-in first-out method.
11
<PAGE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUBSEQUENT EVENTS
The Company acquired a software development company, Easy IP Limited
(Easy IP), effective April 19, 1999 for $212,000. The Company paid
the $212,000 as follows: $96,000 in cash and issued a $96,000 note
with 2 equal payments of $48,000 due in October 1999 and April 2000.
In addition the Company issued Easy IP 200,000 shares of the
Company's common stock, valued at $20,000. The Company acquired
$859,457 in assets, assumed $681,158 in liabilities and recorded
$92,811 in goodwill in this transaction. This results in Easy IP
being a wholly owned subsidiary of the Company. See Note 8 for the
pro forma financial statements including Easy IP.
During 1998, the Company received 2 loans from USDI in the amounts of
$260,000 and $250,000 in March 31, 1999 and July 31, 1999
respectively. During the first six months of 1999, the Company repaid
the $260,000 in full while the $250,000 loan was assigned to a
related party (shareholder). The assignee forgave approximately 50%
of the loan plus accrued interest, totaling $145,667. The Company
recorded this transaction as an extinguishment of debt.
<TABLE>
NOTE 3 - NOTES PAYABLE
The Company has the following notes payable:
<CAPTION>
1998 1997
---------------- -----------------
<S> <C> <C>
Note in the original amount of $510,000, bears interest
at 10% due on May 31, 2000, secured $ 510,000 -
Note in the original amount of $360,000, bears interest
at 10%, due in September 2000, convertible into common
stock at $0.15 per share. 360,000 -
Note payable related to the purchase of a vehicle
originating in June 1998, bearing interest at 17.8%
for a term of 36 months. This note has a balloon
payment of $10,000 due in June, 2001. 53,208 -
Loan from various directors, due on demand,
no stated interest rate. - 48,000
Less current portion (14,627) (48,000)
---------------- ----------------
Total long term notes payable $ 908,581 $ -
================ ================
</TABLE>
Maturities of notes payable at December 31, 1998 are as follows:
Year Ended
December 31,
------------
1998 $ 14,627
1999 9,142
2000 879,142
2001 20,297
Thereafter -
-----------
$ 923,208
===========
12
<PAGE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as going concern. The Company has incurred operating
losses for the year ended December 31, 1998 and in earlier years and is
dependent upon financing to continue operations. Management is confident that
the Company's operations will result in positive cash flow during the year 2000.
The Company's management is in discussions with a lender to increase a line of
credit. Additional sources of capital to support growth are being investigated.
The Company is currently in the process of raising additional capital through a
placement of shares on the Alternative Investment Market on the London Stock
Exchange. The financial statements do not include any adjustments relating to
recoverability and classification of reported asset amounts or the amounts and
classification of liabilities that might result from the outcome of the
uncertainty.
The Company is seeking to build a group of companies engaged in
telecommunications and related activities.
NOTE 5 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS No. 107, A Disclosure about
Fair Value of Financial Instruments. The carrying amounts and fair value of the
Company's financial instruments at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------------- --------------------------
Carrying Fair Carrying Fair
Amounts Values Amounts Values
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 421 $ 421 $ 69,800 $ 69,800
Notes receivable -
related party - - - -
Accounts receivable - - 442,187 442,187
</TABLE>
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments.
Cash and Cash Equivalents
- -------------------------
The carrying amounts reported on the balance sheet for cash and cash equivalents
approximate their fair value.
Accounts Receivable
- -------------------
The fair values of accounts receivable are based upon the interest rate the
Company would receive on market rates available for savings and investments.
Accounts are evaluated and doubtful accounts are specifically written-off.
13
<PAGE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - STOCK TRANSACTIONS
During 1998, the Company issued 900,000 and 151,200 restricted shares of common
stock for consulting services and employment bonuses, respectively. In addition,
380,000 shares of unrestricted common stock were issued for consulting services
and 51,200 shares were issued for a stock subscription receivable. All
restricted were valued at $1 per share while the restricted shares were issued
at $.01 per share.
NOTE 7 - OPTIONS
The Company issued options to purchase common stock at $2 per share exercisable
before December 31, 1999. No options have been exercised during 1998. There were
no options issued to consultants or employees.
14
<PAGE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - PRO FORMA INFORMATION
The following is pro forma balance sheet at December 31, 1998 and income
statement for the year ended December 31, 1998. This assumes the Company owned
Easy IP for the entire period.
<TABLE>
<CAPTION>
EUROTELECOM EASY IP CONSOLIDATED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1998 1998
-------------- -------------- --------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 421 $ 2,413 $ 2,834
Accounts receivable - 637,083 637,083
Prepaid expenses 57,794 - 54,794
Other current assets 42,010 - 42,010
-------------- -------------- --------------
Total current assets 97,225 639,496 736,721
PROPERTY, PLAN AND EQUIPMENT, Net 53,643 4,737 58,380
Investments at cost 44,597 178,824 223,421
-------------- -------------- --------------
TOTAL ASSETS $ 195,465 $ 823,057 $ 1,018,522
============== ============== ==============
CURRENT LIABILITIES:
Bank Overdraft 65,904 - 65,904
Accounts payable 210,488 652,462 862,950
Accrued expenses 47,234 - 47,234
Accrued income and other taxes 37,625 - 37,625
Current maturities of long-term obligations 14,627 - 14,627
-------------- -------------- --------------
Total current liabilities 375,878 652,462 1,028,340
LONG TERM LIABILITIES:
Notes Payable (Note 1) 923,209 - 923,209
Less: Current maturities of long-term debt (14,627) - (14,627)
-------------- -------------- --------------
908,582 - 908,582
-------------- -------------- --------------
TOTAL LIABILITIES 1,284,460 652,462 1,936,922
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $0.01 par value, 20,000,000 authorized
shares; 6,519,016 issued and outstanding
at December 31, 1998 65,191 - 65,191
Additional paid-in capital 20,726,382 - 20,726,382
Less: subscription receivable (91,214) - (91,214)
Accumulated deficit (21,789,354) 170,595 (21,618,759)
-------------- -------------- --------------
Total stockholders' equity (deficit) (1,088,995) 170,595 (918,400)
-------------- -------------- --------------
Total Liabilities and Stockholders' Equity $ 195,465 $ 823,057 $ 1,018,522
============== ============== ==============
</TABLE>
15
<PAGE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - PRO FORMA INFORMATION (continued)
<TABLE>
<CAPTION>
EUROTELECOM EASY IP CONSOLIDATED
FOR THE YEAR FOR THE YEAR FOR THE YEAR
MONTHS ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1998 1998
-------------- -------------- --------------
<S> <C> <C> <C>
REVENUES $ 64,000 $ 2,034,709 $ 2,098,709
COST OF SALES - 1,565,123 1,565,123
-------------- -------------- --------------
GROSS PROFIT 64,000 469,586 533,586
-------------- -------------- --------------
General & Administrative Expenses 1,137,997 351,563 1,489,560
-------------- -------------- --------------
OPERATING PROFIT/(LOSS) (1,073,997) 118,023 (955,974)
-------------- -------------- --------------
OTHER INCOME AND (EXPENSES)
Interest expense (54,290) (4,366) (58,656)
-------------- -------------- --------------
Total other income and expenses (54,290) (4,366) (58,656)
-------------- -------------- --------------
Income (loss) before income taxes (1,128,287) 113,657 (1,014,630)
-------------- -------------- --------------
Provision for Income Taxes (100) (20,458) (20,558)
-------------- -------------- --------------
Net Income/(loss) $ (1,128,387) $ 93,199 $ (1,035,188)
============== ============== ==============
</TABLE>
EXHIBIT 3(ii)
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
Consolidated Financial Statements
June 30, 1999
<PAGE>
C O N T E N T S
---------------
Accountants' Report ................................................ 3
Consolidated Balance Sheets ........................................ 4
Consolidated Statements of Operations .............................. 6
Consolidated Statements of Stockholders' Equity..................... 7
Consolidated Statements of Cash Flows .............................. 8
Notes to the Financial Statements ..................................10
-2-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
We have audited the accompanying consolidated balance sheets of EuroTelecom
Communications Inc. and subsidiaries as of June 30, 1999, December 31, 1998 and
1997 and the related consolidated statements of operations, consolidated
stockholders' equity and consolidated cash flows for the six months ended June
30, 1999 and the years ended December 31, 1998 and 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of EuroTelecom
Communications Inc. and subsidiaries as of June 30, 1999, December 31, 1998 and
1997 and the results of its operations and cash flows for the six months ended
June 30, 1999 and the years ended December 31, 1998 and 1997, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 7 to the
consolidated financial statements, the Company's recurring operating losses and
lack of working capital raise substantial doubt about its ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 7. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Salt Lake City, Utah
October 20, 1999
3
<PAGE>
<TABLE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
------
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ - $ 421 $ 69,810
Accounts receivable 897,109 - 442,187
Accounts receivable - related party 57,732 - -
Other receivables 188,026 - -
Inventory 363,104 - 76,637
Prepaid expenses 28,202 54,794 342,878
Other current assets - 42,010 29,802
------------- ------------- -------------
Total current assets 1,534,173 97,224 961,314
------------- ------------- -------------
PROPERTY, PLANT AND EQUIPMENT, NET 92,024 53,643 20,218
Goodwill 92,811 - -
Investments at cost 44,597 44,597 44,596
------------- ------------- -------------
TOTAL ASSETS $ 1,763,605 $ 195,464 $ 1,026,128
============= ============= =============
</TABLE>
(continued)
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(continued)
<TABLE>
LIABILITIES AND EQUITY
----------------------
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Bank Overdraft $ 380,662 $ 65,904 $ -
Accounts payable - related party 9,600 - 56,000
Accounts payable (Note 2) 753,757 210,488 492,876
Accrued expenses 210,541 47,234 253,918
Accrued income and other taxes 316,294 37,625 329,139
Current maturities of long-term obligations 470,627 14,627 48,000
------------- ------------- -------------
Total current liabilities 2,141,481 375,878 1,179,933
------------- ------------- -------------
LONG TERM LIABILITIES:
Notes Payable (Note 1) 941,891 923,209 -
Less: Current maturities of long-term debt (470,627) (14,627) -
------------- ------------- -------------
Total long term liabilities 471,264 908,582 -
------------- ------------- -------------
TOTAL LIABILITIES 2,612,745 1,284,460 1,179,933
------------- ------------- -------------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $0.01 par value, 20,000,000 authorized shares;
8,977,102, 6,519,016 and 5,036,616 issued and outstanding, at
June 30, 1999, December 31, 1998 and 1997, respectively 89,772 65,191 50,367
Additional paid-in capital 21,778,006 20,726,382 20,204,886
Less: subscription receivable (131,787) (91,214) (40,014)
Accumulated deficit (22,585,131) (21,789,354) (20,369,044)
------------- ------------- -------------
Total stockholders' equity (deficit) (849,140) (1,088,995) (153,805)
------------- ------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,763,605 $ 195,464 $ 1,026,128
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
<TABLE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<CAPTION>
FOR THE SIX FOR THE SIX FOR THE FOR THE
MONTHS ENDED MONTHS ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
1999 1998 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES $ 1,306,807 $ 32,000 $ 64,000 $ 1,212,352
COST OF SALES 793,365 - - 777,742
------------- ------------- ------------- -------------
GROSS PROFIT 513,442 32,000 64,000 434,610
------------- ------------- ------------- -------------
GENERAL & ADMINISTRATIVE EXPENSES 1,281,163 664,758 1,115,391 1,000,685
DEPRECIATION 16,786 11,434 22,606 7,670
------------- ------------- ------------- -------------
OPERATING LOSS (784,507) (664,192) (1,073,997) (573,745)
------------- ------------- ------------- -------------
OTHER INCOME AND (EXPENSES)
Other Income 120 22 - -
Profit/(Loss) on investment - - - (44,800)
Interest expense (34,543) (12,288) (54,290) (24,304)
------------- ------------- ------------- -------------
Total other income and expenses (34,423) (12,264) (54,290) (69,104)
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES (818,930) (656,456) (1,128,287) (642,849)
------------- ------------- ------------- -------------
PROVISION FOR INCOME TAXES 100 - 100 -
------------- ------------- ------------- -------------
NET INCOME FROM CONTINUING OPERATIONS $ (819,030) $ (656,456) $ (1,128,387) $ (642,849)
------------- ------------- ------------- -------------
LOSS FROM CLOSED SUBSIDIARY $ (122,414) $ - $ (291,923) $ -
------------- ------------- ------------- -------------
NET LOSS BEFORE EXTRAORDINARY ITEM $ (941,444) $ (656,456) $ (1,420,310) $ (642,849)
------------- ------------- ------------- -------------
EXTRAORDINARY ITEM
- ------------------
GAIN ON EXTINGUISHMENT OF DEBT 145,667
NET LOSS AFTER EXTRAORDINARY ITEM $ (795,777) $ (656,456) $ (1,420,310) $ (642,849)
============= ============= ============= =============
NET LOSS PER SHARE FROM CONTINUING OPERATIONS $ (0.106) $ (0.122) $ (0.195) $ (0.128)
NET LOSS PER SHARE FROM DISCONTINUED OPERATIONS $ (0.016) $ - $ (0.050) $ -
NET INCOME PER SHARE FROM EXTRAORDINARY ITEM $ .019 - - -
NET LOSS PER COMMON SHARE $ (0.103) $ (0.122) $ (0.245) $ (0.128)
============= ============= ============= =============
WEIGHTED AVERAGE OF COMMON
SHARES OUTSTANDING 7,748,059 5,394,416 5,777,816 5,036,616
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
<TABLE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
From January 1, 1997 through June 30, 1999
<CAPTION>
Common Stock Retained
------------------------------- Paid-In Earnings Subscription
Shares Amount Capital (Deficit) Receivable
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1997 76,356 $ 764 $ 19,601,257 $ (19,559,517) $ -
Shares issued for services 570 5 662 - -
Reverse stock split 117.05941 to 1 - - - - -
Shares issued to round up fractions 253 3 (3) - -
Free trading stock for services 734,477 7,345 256,126 - -
Free trading stock for cash 223,600 2,236 336,869 - -
Restricted shares issued for cash 2,500 25 9,975 - -
EuroTelecom Inc. (net of cancellations)
-restricted shares in a
stock-for-stock acquisition 3,998,860 39,989 - - -
Less: Stock subscription - - - - (40,014)
Cash issued to acquire public shell - - - (166,678) -
Net loss for period ended
December 31, 1997 (642,849) -
-------------- -------------- -------------- -------------- --------------
Balance December 31, 1997 5,036,616 50,367 20,204,886 (20,369,044) (40,014)
-------------- -------------- -------------- -------------- --------------
Shares issued during 1998:
Consulting services 1,280,000 12,800 457,200 - -
Employee bonuses 151,200 1,512 13,608 - -
Subscription agreement 51,200 512 50,688 - (51,200)
Net loss for period ended
December 31, 1998 - - - (1,420,310) -
-------------- -------------- -------------- -------------- --------------
Balance December 31, 1998 6,519,016 $ 65,191 $ 20,726,382 $ (21,789,354) $ (91,214)
-------------- -------------- -------------- -------------- --------------
Shares issued during 1999:
Cash 1,341,666 13,417 858,663 - -
Consulting services 758,000 5,080 128,471 - -
Employee bonuses 96,000 3,460 6,540 - -
Subscription agreement 62,420 624 39,950 - (40,573)
Acquisition of Easy IP Limited 200,000 2,000 18,000 - -
Net loss for period ended
June 30, 1999 - - - (795,777) -
-------------- -------------- -------------- -------------- --------------
Balance at June 30, 1999 8,977,102 $ 89,772 $ 21,778,006 $ (22,585,131) $ (131,787)
============== ============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(unaudited)
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
1999 1998 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Income (795,777) (656,456) (1,420,310) (642,849)
Adjustments to reconcile net
income to net cash from
operating activities:
Depreciation and amortization 16,786 11,434 22,606 7,670
Loss on discontinued operations 122,414 - 291,923 -
Gain on extinguishment of debt (145,667) - - -
Non-cash items:
Stock issued for services 143,551 235,000 470,000 264,137
Changes in current assets and
liabilities:
Receivables (954,841) 442,187 442,187 (409,233)
Inventories (363,104) 76,637 76,637 (76,637)
Other current assets (68,601) 313,310 275,876 (372,680)
Accrued expenses 163,307 (238,510) (206,684) 583,057
Accounts payable 543,269 (399,526) (282,388) 548,876
Other liabilities 278,669 - - 48,000
------------- ------------- ------------- -------------
Net cash provided by (used) by
operating activities (1,059,994) (215,924) (330,153) (49,659)
------------- ------------- ------------- -------------
Cash flows from Investing Activities:
Purchase of fixed assets (19,051) (44,859) (33,425) (27,888)
Purchase shell - - - (166,678)
Investments - - - (44,596)
------------- ------------- ------------- -------------
Net cash provided by (used in)
investing activities (19,051) (44,859) (33,425) (239,162)
------------- ------------- ------------- -------------
Cash flows from Financing Activities:
Proceeds from issuance of
common stock 872,080 - - 348,981
Proceeds from issuance of debt 206,965 260,362 294,189 -
------------- ------------- ------------- -------------
Net cash provided by (used in)
financing activities 1,079,045 260,362 294,189 348,981
------------- ------------- ------------- -------------
Increase (decrease) in Cash (421) - (69,389) 60,160
Cash and Cash Equivalents
at beginning of period 421 - 69,810 9,650
------------- ------------- ------------- -------------
Cash and Cash Equivalents
at end of period - - 421 69,810
------------- ------------- ------------- -------------
Supplemental Cash Flow Information:
Cash paid for interest 5,340 4,736 -
Cash paid for income taxes - - -
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The financial statements presented are those of EuroTelecom
Communications, Inc. and its subsidiaries (the Company).
EuroTelecom Communications, Inc. was incorporated under the laws of
the State of Utah in 1984. The principal business of the Company
through November 1988 was to sell point-of-purchase advertising
services to national and local advertisers using Ad Centers located
in shopping malls across the United States. In November 1988, ATNN
discontinued its advertising business and purchased a truck stop
business located in Brooks, Oregon which was comprised of a
convenience store, a fast food restaurant, and fueling facilities for
trucks and passenger cars. In September 1989, the Company acquired
all of the outstanding common stock of Meadow Valley Constructors
(MVC), a privately held interstate bridge construction company,
located in Phoenix, Arizona. On July 13, 1990, the Company entered
into a rescission agreement with the former stockholders of MVC. The
Company terminated its interests in MVC.
The Company continued in the truck stop business until August of 1993
when the Company conveyed the truck shop business to American
Telemedia Network, Inc. (ATN) in lieu of foreclosure. ATN assumed
possession of the assets and related liabilities.
On August 1, 1997 the Company consummated a reverse merger pursuant
to an agreement dated July 10, 1997. The principle elements of the
reverse merger were as follows:
(a) a 1 for 117.05941 reverse split of the Company's 11,705,941
shares, leaving 100,000 common shares outstanding;
(b) the issuance of 5,865,000 post-reverse split shares to the
shareholders of EuroTelecom Inc. (EuroTelecom Inc. was
incorporated in the State of Delaware on December 19, 1996
under the name Wing Systems Inc. and changed its name to
EuroTelecom Inc. on January 31, 1997) of which 1,866,140
shares were subsequently cancelled due to non-performance of
consulting services;
(c) the issuance of 734,477 net post-reverse split shares to
consultants in consideration of services rendered in
connection with the transaction.
The Company changed its name to EuroTelecom Communications Inc. on
August 11, 1997.
The Company acquired a software development company, Easy IP Limited
(Easy IP), effective April 19, 1999 for $212,000. The Company paid
the $212,000 as follows: $96,000 in cash and issued a $96,000 note
with 2 equal payments of $48,000 due in October 1999 and April 2000.
In addition the Company issued Easy IP 200,000 shares of the
Company's common stock, valued at $20,000. The Company acquired
$859,457 in assets, assumed $681,158 in liabilities and recorded
$92,811 in goodwill in this transaction. This results in Easy IP
being a wholly owned subsidiary of the Company. See Note 8 for the
pro forma financial statements including Easy IP.
<PAGE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
a. Organization (continued)
The Company also formed two entities, Chunlan Limited and Universal
Communication Solutions Limited, which are wholly owned by the
Company. These two companies had no operations as of June 30, 1999.
The Company is seeking to build a group of companies engaged in
telecommunications and related activities. The Company's UK
activities are organized through a wholly owned intermediate holding
company, EuroTelecom Corporation Limited.
b. Subsidiary activity
On September 16, 1997 a wholly owned subsidiary company, EuroTelecom
Secure Networks Limited (Secure Networks), was incorporated in the UK
to provide certain internet technology and communication products and
services formerly carried on by OSPL (UK) Limited, which company had
been placed in administration, and other related services, similar to
EuroTelecom. On February 19, 1999, Secure Networks was placed into
voluntary liquidation. As a result, the assets and liabilities of
Secure Networks have been removed from the consolidated balance sheet
and recorded as discontinued operations on the consolidated statement
of operations.
c. Basis of Presentation
The consolidated financial statements present the consolidated
financial position of the Company and its subsidiary EuroTelecom
Corporation Limited. Secure Networks activity is recorded as
discontinued operations in the consolidated financial statements
since it ceased operations on February 19, 1999. All significant
inter-company accounts and balances have been eliminated on
consolidation.
d. Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash at bank and
temporary investments with original maturities of 90 days or less at
the date of purchase.
e. Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and revenues and expenses during the
reporting period. In these financial statements, assets, liabilities
and earnings involve reliance on management's estimates. Actual
results could differ from those estimates.
<PAGE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
f. Provision for Income Taxes
The Company accounts for income taxes based on the provisions of
Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes (SAFS 109"). Under SFAS 109, the liability method is
used for accounting for income taxes, and deferred tax assets and
liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities.
No provision for income taxes have been recorded due to net operating
loss carryforwards totaling approximately $21,000,000 that will be
offset against future taxable income. These NOL carryforwards begin
to expire in the year 1999 and will continue to expire through the
year 2019. No tax benefit has been reported in the financial
statements because the Company believes there is a 50% or greater
chance the carryforward will expire unused.
1999 1998 1997
------------- ------------- -------------
Tax Assets:
NOL Carryforwards $ 7,140,000 $ 7,408,300 $ 7,010,300
Valuation Allowance (7,140,000) (7,408,300) (7,010,300)
------------- ------------- -------------
Total $ - $ - $ -
============= ============= =============
g. Recognition of Revenue and Expenses
The Company recognizes income and expenses on the accrual basis of
accounting.
h. Foreign Currencies
Transactions in foreign currencies are recorded using the rate of
exchange at the date of the transaction. Assets and liabilities are
translated using the exchange rate at the balance sheet date. Since
the exchange rate has remained stable between the two currencies, no
foreign currency exchange adjustment was recorded.
i. Inventories
Inventories are stated at lower of cost or market using the First-in,
First-out method.
j. Property, Plant and Equipment
Property, Plant and Equipment is stated at cost. Major renewals and
improvements are capitalized while expenditures for maintenance and
repairs are charged to operations as incurred. Depreciation is
computed on the straight-line method over the estimated useful life
up to five years.
Equipment at June 30, 1999 consists of computers and machinery (net)
$92,024. Depreciation expense was $16,786, $22,606 and $7,670 for
June 30, 1999, December 31, 1998 and 1997, respectively.
<PAGE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
k. Net Income (Loss) Per Share
The computable of net income/(loss) per share is based on the
weighted average number of shares outstanding during the period. No
conversions of notes payable have been included in the computation of
earnings per share because their effect is considered anit-dilutive.
l. Research and Development
The Company did not incur any research and development costs for the
years ended December 31, 1998 or December 31, 1997, or the six months
ended June 30, 1999.
m. Extinguishment of Debt
During 1998, the Company received 2 loans from USDI in the amounts of
$260,000 and $250,000 in March 31, 1999 and July 31, 1999
respectively. The Company repaid the $260,000 in full while the
$250,000 loan was assigned to a related party (shareholder). The
assignee forgave approximately 50% of the loan plus accrued interest,
totaling $145,667.
n. Profit/(Loss) on Investment
Marketable equity securities are stated at market value in accordance
with Financial Accounting Standards "FAS") No. 115. Valuation of
other security investments is based on acquisition costs. Markdowns
are made to reflect significant (permanent) impairment in values and
are reflected in the write down of $44,800 in December 31, 1997.
Gains and losses on sale of securities available for sale are
determined using a first-in first-out method.
NOTE 2 - NOTES PAYABLE
<TABLE>
The Company has the following notes payable:
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Note in the original amount of $360,000, bears interest
at 10%, due in September, 2000, convertible into
common stock at $0.15 per share. 360,000 - -
Note related to the acquisition of Easy IP Limited,
due in two equal installments of $48,000 in
October, 1999 and May, 2000. 96,000 - -
Note in the original amount of $80,000, bears interest
at 10%, due in September, 2000, convertible into
common stock at $0.15 per share. 80,000 - -
Note in the original amount of $510,000, bears interest
at 10%, due on May 31, 2000, secured. - 510,000 -
Note in the original amount of $360,000, bears interest
at 10%, due on May 31, 2000, secured. 360,000 360,000 -
Note payable related to the purchase of a vehicle
originating in June, 1998, bearing interest at 17.8%
for a term of 36 months. This note has a balloon
payment of $10,000 due in June, 2001 45,891 53,208 -
Loans from various directors, due on demand,
no stated interest rate. - - 48,000
------------- ------------- -------------
Total notes payable 941,891 923,208 48,000
Less current portion (470,627) (14,627) (48,000)
------------- ------------- -------------
Total long term notes payable 471,264 908,581 -
============= ============= =============
</TABLE>
Maturities of notes payable at June 30,1999 are as follows:
2000 470,627
2001 454,627
2002 16,637
2003 -
Thereafter -
-----------
$ 941,891
===========
<PAGE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No.
107, A Disclosure about Fair Value of Financial Instruments. The
carrying amounts and fair value of the Company's financial instruments
at June 30, 1999, December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998 December 31, 1997
------------------------ --------------------------- ----------------------------
Carrying Fair Carrying Fair Carrying Fair
Amounts Values Amounts Values Amounts Values
---------- ----------- ------------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents - - 421 421 69,800 69,800
Accounts receivable 897,109 897,109 - - 442,187 442,187
Accounts receivable-
Related party 57,732 57,732 - - - -
</TABLE>
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments.
CASH AND CASH EQUIVALENTS
The carrying amounts reported on the balance sheet for cash and cash
equivalents approximate their fair value.
ACCOUNTS RECEIVABLE
The fair values of accounts receivable are based upon the interest rate
the Company would receive on market rates available for savings and
investments. Accounts are evaluated and doubtful accounts are
specifically written-off.
NOTE 4 - STOCK TRANSACTIONS
During 1998, the Company issued 900,000 and 151,200 restricted shares
of common stock for consulting services and employment bonuses,
respectively. In addition, 380,000 shares of unrestricted common stock
were issued for consulting services and 51,200 shares were issued for a
stock subscription receivable.
In the first six months of 1999, the Company had the following stock
transactions:
1. Issued 1,341,666 shares for $872,080 in cash.
2. Issued 758,000 shares for $133,551 in consulting services.
3. Issued 96,000 shares for $10,000 employee bonuses.
4. Issued 62,420 shares for a $40,574 in subscription agreements.
5. Issued 200,000 shares in the acquisition of Easy IP, valued at
$20,000.
<PAGE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - OPTIONS
The Company issued options to purchase common stock at $2 per share
exercisable before December 31, 1999. At June 30, 1999 no option have
been exercised. There were no options issued to consultants or
employees.
NOTE 6 - SUBSEQUENT EVENT
On July 1, 1999, the convertible notes in the amounts of $80,000 and
$360,000 were converted into 550,000 and 2,475,000 shares of restricted
common stock, respectively.
In August, 1999, the Company purchased RTC, Inc. for 250,000 shares of
restricted stock valued at $250,000. A value of $1 per share was placed
on the common stock since it was restricted. The transaction involved
recording $250,000 of goodwill, there were no assets or liabilities
purchased. RTC is incorporated in the state of Maryland and operates as
a full service technical marketing, sales and consulting firm
specializing in electronic communication. See Note 8 for pro forma
financial statements including RTC, Inc.
NOTE 7 - NON CASH AND INVESTING ACTIVITIES
The Company issued $96,000 in notes and issued 200,000 shares of stock
valued at $20,000 to acquire Easy IP. Common stock was also issued for
consulting services and employee bonuses, see Note 4 for more detail.
<PAGE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - PRO FORMA INFORMATION
The following is pro forma balance sheet at June 30, 1999 and income statement
for the six months ending June 30, 1999. This assumes the Company owned both
Easy IP and RTC, Inc. for the entire period.
<TABLE>
<CAPTION>
EUROTELECOM RTC, INC. CONSOLIDATED
JUNE 30, JUNE 30, JUNE 30,
1999 1999 ELIMINATIONS 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ - $ - $ - $ -
Accounts receivable 897,109 - - 897,109
Accounts receivable - related party 57,732 - - 57,732
Other receivables 188,026 - - 188,026
Inventory 363,104 - - 363,104
Prepaid expenses 28,202 - - 28,202
------------- ------------- ------------- -------------
Total current assets 1,534,173 - - 1,534,173
PROPERTY, PLANT AND EQUIPMENT, NET 92,024 - 92,024
Investment in subsidiary 250,000 - (250,000) -
Goodwill 92,811 250,000 - 342,811
Investments at cost 44,597 - - 44,597
------------- ------------- ------------- -------------
TOTAL ASSETS $ 2,013,605 $ 250,000 $ (250,000) $ 2,013,605
============= ============= ============= =============
CURRENT LIABILITIES:
Bank Overdraft $ 380,662 $ - $ - $ 380,662
Accounts payable - related party 9,600 - - 9,600
Accounts payable (Note 2) 753,757 - - 753,757
Accrued expenses 210,541 - - 210,541
Accrued income and other taxes 316,294 - - 316,294
Current maturities of long-term obligations 470,627 - - 470,627
------------- ------------- ------------- -------------
Total current liabilities 2,141,481 - - 2,141,481
------------- ------------- ------------- -------------
LONG TERM LIABILITIES:
Notes Payable (Note 2) 941,891 - - 941,891
Less: Current maturies of long-term debt (470,627) - - (470,627)
------------- ------------- ------------- -------------
Total long term liabilities 471,264 - - 471,264
------------- ------------- ------------- -------------
TOTAL LIABILITIES 2,612,745 - - 2,612,745
------------- ------------- ------------- -------------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $0.01 par value, 20,000,000
authorized shares, 8,977,102, issued and
outstanding at June 30, 1999 92,272 250,000 (250,000) 92,272
Additional paid-in capital 22,025,506 - - 22,025,506
Less: subscription receivable (131,787) - - (131,787)
Accumulated deficit (22,585,131) - - (22,585,131)
------------- ------------- ------------- -------------
Total stockholders' equity (deficit) (599,140) 250,000 (250,000) (599,140)
------------- ------------- ------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,013,605 $ 250,000 $ - $ 2,013,605
============= ============= ============= =============
</TABLE>
<PAGE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - PRO FORMA INFORMATION (CONTINUED
<TABLE>
<CAPTION>
EUROTELECOM EASY IP RTC CONSOLIDATED
FOR THE SIX FOR THE SIX FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1999 JUNE 30, 1999 JUNE 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES 774,882 645,626 132,143 1,552,651
COST OF SALES 345,328 535,914 21,808 903,050
------------- ------------- ------------- -------------
GROSS PROFIT 429,554 109,712 110,335 649,601
------------- ------------- ------------- -------------
GENERAL & ADMINISTRATIVE EXPENSES 1,206,432 98,325 70,452 1,375,209
------------- ------------- ------------- -------------
OPERATING PROFIT/(LOSS) (776,878) 11,387 39,883 (725,608)
------------- ------------- ------------- -------------
OTHER INCOME AND (EXPENSES)
Other Income - 120 - 120
Interest expense (2,510) (1,328) - (3,838)
------------- ------------- ------------- -------------
Total other income and expenses (2,510) (1,208) - (3,718)
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES (779,388) 10,059 39,883 (729,326)
------------- ------------- ------------- -------------
PROVISION FOR INCOME TAXES (1,620) (2,482) (7,578) (11,680)
------------- ------------- ------------- -------------
NET LOSS FROM CONTINUING OPERATIONS (781,008) 7,578 32,305 (741,006)
------------- ------------- ------------- -------------
</TABLE>
<PAGE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - PRO FORMA INFORMATION (CONTINUED)
The following is pro forma information for the year ending December 31, 1998.
This assumes the Company owned both Easy IP and RTC, Inc. for the entire period.
<TABLE>
<CAPTION>
EUROTELECOM EASY IP RTC CONSOLIDATED
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, 1999 DECEMBER 31, 1999 DECEMBER 31, 1999 DECEMBER 31, 1999
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
REVENUES $ 64,000 $ 2,034,709 $ 231,088 $ 2,329,797
COST OF SALES - 1,565,123 57,106 1,622,229
----------------- ----------------- ----------------- -----------------
GROSS PROFIT 64,000 469,586 173,982 707,568
----------------- ----------------- ----------------- -----------------
GENERAL & ADMINISTRATIVE EXPENSES 1,137,997 351,563 163,014 1,652,574
----------------- ----------------- ----------------- -----------------
OPERATING PROFIT/(LOSS) (1,073,997) 118,023 10,968 (945,006)
----------------- ----------------- ----------------- -----------------
OTHER INCOME AND (EXPENSES)
Interest expense (54,290) (4,366) - (58,656)
----------------- ----------------- ----------------- -----------------
Total other income and expenses (54,290) (4,366) - (58,656)
----------------- ----------------- ----------------- -----------------
INCOME (LOSS) BEFORE INCOME TAXES (1,128,287) 113,657 10,968 (1,003,662)
----------------- ----------------- ----------------- -----------------
PROVISION FOR INCOME TAXES (100) (20,458) (1,974) (22,532)
----------------- ----------------- ----------------- -----------------
NET INCOME/(LOSS) (1,128,387) 93,199 8,994 (1,026,194)
----------------- ----------------- ----------------- -----------------
</TABLE>
NOTE 9 - GOING CONCERN
The accompanying financial statements have been prepared assuming that
the Company will continue as going concern. The Company has incurred
operating losses for the six months ended June 30, 1999 and in earlier
years and is dependent upon financing to continue operations.
Management is confident that the Company's operations will result in
positive cash flow during the year 2000. The Company's management is in
discussions with a lender to increase a line of credit. Additional
sources of capital to support growth are being investigated. The
Company is currently in the process of raising additional capital
through a placement of shares on the Alternative Investment Market on
the London Stock Exchange. The financial statements do not include any
adjustments relating to recoverability and classification of reported
asset amounts or the amounts and classification of liabilities that
might result from the outcome of the uncertainty.
The Company is seeking to build a group of companies engaged in
telecommunications and related activities.
<PAGE>
EUROTELECOM COMMUNICATIONS INC
------------------------------
FINANCIAL INFORMATION
---------------------
FINANCIAL STATEMENTS
<TABLE>
EUROTELECOM COMMUNICATIONS INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
SEPTEMBER 30 JUNE 30
1999 1999
(UNAUDITED) (AUDITED)
-------------- --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 10,453 $ -
Accounts receivable 1,151,617 897,109
Accounts receivable - related party 32,132 57,732
Other receivables 218,032 188,026
Inventories 528,715 363,104
Prepaid expenses 58,600 28,202
-------------- --------------
TOTAL CURRENT ASSETS $ 1,999,549 $ 1,534,173
Property and equipment, net 282,500 92,024
Goodwill, net 92,061 92,811
Investments at cost - 44,597
-------------- --------------
TOTAL ASSETS $ 2,374,110 $ 1,763,605
============== ==============
</TABLE>
<PAGE>
<TABLE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED BALANCE SHEETS (CONTINUED)
---------------------------------------
<CAPTION>
SEPTEMBER 30 JUNE 30
1999 1999
(UNAUDITED) (AUDITED)
-------------- --------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank overdraft $ 719,807 $ 380,662
Current maturities of long-term obligations 51,213 470,627
Accounts payable 1,569,764 753,757
Accounts payable - related party - 9,600
Accrued liabilities 11,366 210,541
Accrued income and other taxes 275,422 316,294
-------------- --------------
TOTAL CURRENT LIABILITIES $ 2,627,572 $ 2,141,481
Long-term liabilities:
Notes payable 178,917 941,891
Less: current maturities of long term debt (51,213) (470,627)
-------------- --------------
TOTAL LONG TERM LIABILITIES $ 127,704 $ 471,264
-------------- --------------
TOTAL LIABILITIES $ 2,755,276 $ 2,612,745
Stockholders' equity (deficit):
Common Stock, $.01 par value. Authorized
20,000,000 shares; and 14,787,102 and 8,977,102
shares issued in September 30 1999 and June 30 1999
respectively
Additional paid-in capital 22,826,081 21,778,006
Less subscriptions receivable - (131,787)
Accumulated deficit (23,355,119) (22,585,131)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY $ (381,166) $ (849,140)
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 2,374,110 $ 1,763,605
============== ==============
</TABLE>
<PAGE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
THREE MONTHS ENDED SEPTEMBER 30
-------------------------------
1999 1998
---- ----
(UNAUDITED) (UNAUDITED)
Net revenues $ 1,208,537 $ 16,000
Cost of revenue 920,221 -
-------------- --------------
GROSS PROFIT $ 288,316 $ 16,000
-------------- --------------
Expenses:
Selling and administrative 662,221 169,197
Asset writedowns 9,495 5,586
Amortization of goodwill 750 -
-------------- --------------
OPERATING LOSS $ (384,150) $ (158,783)
-------------- --------------
Other Income/(expense):
Interest expense (32,241) (16,756)
-------------- --------------
LOSS FROM CONTINUING OPERATIONS $ (416,391) $ (175,539)
-------------- --------------
Write-offs (note 1) (353,597)
-------------- --------------
LOSS ALLOCABLE TO COMMON STOCKHOLDERS $ (769,988) $ (175,539)
-------------- --------------
Basic and diluted loss per share:
Continuing operations (0.065) (0.034)
-------------- --------------
NET LOSS PER SHARE $ (0.065) $ (0.034)
============== ==============
Weighted average number of common shares 11,882,102 5,217,103
<PAGE>
<TABLE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
3 MONTHS ENDED 3 MONTHS ENDED
30 SEPTEMBER 30 SEPTEMBER
1999 1998
---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cashflows from operating activities:
Net loss $ (769,988) $ (175,539)
ADJUSTMENTS TO RECONCILE NET LOSS
Depreciation and amortization 10,245 5,586
Write off investments 44,597 -
Non-cash items: -
Stock issued for services 117,500
CHANGES IN CURRENT ASSETS AND LIABILITIES
Receivables (228,908) 0
Inventories (165,611) 0
Other current assets (60,404) (12,130)
Accrued expenses (199,175) 19,929
Accounts payable 806,407 4,427
Other liabilities (40,872) -
-------------- --------------
Net cash provided by (used) by operating activities (603,709) (40,227)
============== ==============
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (199,971) 11,434
-------------- --------------
Net cash provided by (used in) investing activities (199,971) 11,434
============== ==============
CASH FLOW FROM FINANCING ACTIVITIES
Notes payable repaid (800,000) -
New notes payable 37,026 -
Proceeds from issuance of common stock 1,106,175 -
Subscription receivable 131,787 -
Proceeds from issuance of debt net of repayments - 18,089
-------------- --------------
Net cash provided by (used in) financing activities 474,988 18,089
============== ===============
INCREASE (DECREASE) IN CASH - -
Cash and cash equivalents at beginning of period - -
Cash and cash equivalents at end of period - -
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 10,453
<SECURITIES> 0
<RECEIVABLES> 1,151,617
<ALLOWANCES> 0
<INVENTORY> 528,715
<CURRENT-ASSETS> 1,999,549
<PP&E> 282,500
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,374,110
<CURRENT-LIABILITIES> 2,627,572
<BONDS> 0
0
0
<COMMON> 147,872
<OTHER-SE> (529,038)
<TOTAL-LIABILITY-AND-EQUITY> 2,374,110
<SALES> 1,208,537
<TOTAL-REVENUES> 1,208,537
<CGS> 920,221
<TOTAL-COSTS> 1,592,687
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,241
<INCOME-PRETAX> (416,391)
<INCOME-TAX> 0
<INCOME-CONTINUING> (416,391)
<DISCONTINUED> 0
<EXTRAORDINARY> (353,597)
<CHANGES> 0
<NET-INCOME> (769,988)
<EPS-BASIC> (0.065)
<EPS-DILUTED> (0.065)
</TABLE>
